“ETFs are becoming an increasingly important part of investors’ portfolios,” according to a Schwab study. “At Schwab, we’ve found that investors are viewing ETFs as the foundational component of a well-diversified investment portfolio, and we believe that sentiment will continue to grow. On average, investors already using ETFs are now allocating one-fifth (21%) of their total portfolios to ETFs, up five percentage points from 16% in 2012.”

Fueling the rapid growth, Schwab has found that retail investor and RIA client activity have surged over the years and contributed to significant ETF asset growth.

The rapid growth has also helped increased competitiveness in the ETF industry and lower overall costs for investors. In 1989, a balanced portfolio of the lowest cost mutual funds had an average operating expense ratio (OER) of 0.41%. Today, the lowest OER version of this same portfolio is composed of all ETFs, dropping the portfolio’s average OER to 0.05%, according to Schwab data.

“With the growth in ETFs across all asset classes, investors can now build balanced and well-diversified portfolios at an average expense ratio that is 87% lower than what was possible before ETFs first launched in 1993,” Marie Chandoha, President and CEO, Charles Schwab Investment Management, said.

With low costs as one of the primary drivers for ETF investments, overall fees will continue to sway investor preferences, especially among the younger generation. According to Schwab data, millennials were the most cost-conscious of the generation groups, with 61% planning to increase investments in ETFs over the next year, compared to 25% of boomers, while 70% see ETFs as the core investment type of their portfolios.

To learn more about the various ETF market trends and fund providers take on the different topics, visit the Schwab ETF OneSource 2016 ETF Industry Outlook microsite here.