A wide range of investors, financial advisors and institutions have adopted exchange traded funds as a cheap and easy way to diversify investment portfolios. Among retail investors, Millennials have been the largest group to include ETFs in their portfolios
According to a recent Charles Schwab survey, ETFs consist of 41% of the portfolios of Generation Y-ers or Millennials, compared to 25% of Gen-X’s portfolios and only 17% of Baby Boomers, reports Ellen Chang for TheStreet.
“For younger investors, ETFs are an easy way to dip your toe in the market,” Keith Denerstein, director of retirement products at TD Ameritrade, told TheStreet.
Millennials see ETFs as a core investment option, with 70% utilizing ETFs as a core portfolio position. On the other hand, 46% of Gen X-ers and 24% of Baby Boomers have utilized ETFs as a core weight.
Millennials are also more apt to expand on their ETF exposure, with 61% planning to increase allocation to ETFs over the next five years. In contrast, 33% of Gen X-ers and 25% of Baby Boomers plan to increase ETF exposure.
Contributing to the popularity of ETF products among retail investors, the ETFs are able to access many market segments or cover a number of strategies reserved for high net worth individuals and also allow investors to trade them like a stock without paying a commission on some brokerage platforms.[related_stories]
“Investors like that ETFs allow them to broaden their investment horizons efficiently and value ETFs’ straightforward pricing without hidden fees,” Alison Wertheim, a spokesperson for Charles Schwab, told TheStreet.
ETFs also come with some of the cheapest fees in the fund industry. According to XTF data, there are 1,934 U.S.-listed ETFs with an average expense ratio of 0.58%. Some of the cheapest ETF options come with a dirt cheap 0.03% expense ratio.
The price of owning ETFs is a “fraction of the cost compared to legacy mutual funds,” which makes it attractive for investors comparing costs of investments, Dave Gedeon, head of research and development of global indexes for Nasdaq, told TheStreet.
Moreover, Rowland Wilhelm, a director at Reaves Asset Management, argued that new phone apps have also contributed to the growth and popularity of ETFs among Gen Y-ers as an easy means of accessing the markets.
“Security in apps from banks or brokerages which allow you to purchase ETFs has steadily increased,” Wilhelm said. “Automatically generating password apps, two stage authentications and fingerprint IDs have made the phone part of the purchasing process, ensuring quick, easy and secure transactions.”
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CORRECTION: Rowland Wilhelm