The easy to trade, cost efficient and transparent exchange traded fund investment vehicle has become a widely popular means of capturing market returns, and if the trend continues, ETF adoption may be headed for continued growth for years to come.
According to the latest ETF Investor Study conducted by Charles Schwab & Co., ETF investors on average revealed that over a quarter of their portfolios, or 27%, are currently allocated in ETFs, compared to 16% in 2012. Investors continue to adopt ETFs, with 42% saying ETFs will be their primary investment vehicle in the future, compared to 28% in 2016. In five years, investors reveal ETFs could make up 33% of their portfolios.
“It has been fascinating to watch attitudes toward ETFs evolve over the seven years we’ve done this survey,” Heather Fischer, V.P. of ETF & Mutual Fund Platforms at Charles Schwab, said in a note. “Each year, investors tell us that ETFs play an even greater role in their portfolios, and all signs point to that growth continuing. As investors have become more familiar with the versatility of ETFs, their confidence levels have grown. Half of ETF investors consider their understanding of ETFs at an intermediate level, almost all (93%) are now fully confident in their ability to choose an ETF that is right for their investment objective.”
Looking at generational breakdowns, Millennials standout among various investor demographics. Around 56% of Millennials say ETFs are their go-to investment vehicle, in contrast 44% Generation Xers favor ETFs and 30% of Boomers focus on ETFs.
Millennials are also more likely to put more money into ETFs, with 60% saying they will increase their ETF exposure next year, compared to 48% of Gen X and 29% of Boomers.
Among the top reasons Millennials like ETFs, the investment vehicle could help reach long-term goals like building wealth and saving for retirement, but Millennials are more likely to consider holding only ETFs instead of solely investing in individual stocks.
“Millennials continue to lead the charge when it comes to ETF adoption,” Fischer said. ” Millennials have grown up with ETFs, and because of their familiarity they seem to be more comfortable than other generations in embracing them as their investment vehicle of choice – and enjoying the benefits of low costs, tax efficiency and transparency.”
Schwab also tried to gauge the responsiveness to socially responsible investments like the those that cover environmental, social and governance principles, which have recently been gaining traction. While only one in 10 ETF investors hold a socially responsible investment, there is increasing interest for this segment, with 46% of all ETF investors believing it is important to invest in socially responsible funds because the strategies align with their beliefs and 51% would invest more if SRI product education was offered.
Millennials, again, remain in the forefront of SRI ETF adoption. Abound 48% of Millennials actively seek out funds that use SRI strategies, compared to 32% of Gen X and 14% of Boomers. Millennials also see socially responsible funds as a way to align with their beliefs while helping them reach long-term goals.
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