Study reveals that this generation plans to allocate more to fixed income in the year ahead
Millennials love exchange-traded funds and have a greater desire for certain asset classes than older peers according to a new report.
Schwab Asset Management polled 2,200 individual investors between the ages of 25 and 75 with at least US$25,000 in investable assets, 1,000 of whom have bought or sold ETFs in the past two years and 1,000 of whom have not bought or sold ETFs within the past two years.
Millennials are more likely to say that ETFs are their investment vehicle of choice (89%) than Gen Xers (78%) or Boomers (67%) and typically hold a larger share of their portfolio in ETFs (37% vs. 25% for Gen Xers and 21% for Boomers). They are also more confident in investing in ETFs and are more likely to be planning a significant increase in ETF investments next year.
The study found that Millennials are more focused on fixed income than older investors, with 50% of this generation saying they want to know more about this asset class compared to 44% of Gen Xers and 36% of Boomers. Half of the Millennial cohort is planning to invest in fixed income ETFs in the next year.
“ETF investors have navigated two dramatically different market environments over the last two years, yet their approach to investing and affinity for ETFs has remained extremely consistent,” said David Botset, Managing Director, Head of Equity Product Management and Innovation, Schwab Asset Management. “As we’ve seen historically, Millennials take a unique approach to how they invest, and that holds true for their approach to fixed income – an asset class that has garnered a lot of attention.”
Overall, the top three asset classes ETF investors plan to invest in over the next year are U.S. equities (55%), bonds/fixed income (47%), and real assets (43%).
Most ETF investors (63%) believe the 60/40 portfolio is the right mix to meet their goals and their portfolios largely reflect that point of view, with 61% of their portfolios in equities and 39% in fixed income, on average.
Why ETFs?
Asked why they choose to invest in ETFs, being easy to buy and sell emerges as the joint top reason cited alongside portfolio diversification (71%) followed by low cost (47%) and tax efficiency (43%).
Among non-ETF investors, diversification is the top reason they are interested.
“We are at a moment where ETF investing has matured, and many investors are very comfortable using these products to execute their long-term plans. At the same time, there is a contingent of investors who haven’t tried ETFs yet and their interest is on the rise, so there is still significant runway for future education and adoption,” said Botset.
Personalization
Personalization is an important element of the ETF landscape and 88% of all age groups said they are somewhat or very likely to personalize their portfolios more in 2023, with Millennials again leading on this and for wanting their ETF investments to align with their personal values.
Having control over their investments, greater ability to customize, and tax efficiency are all cited as extremely important by all cohorts.
Younger generations are also leading demand for direct indexing with 80% interested in using this option in the next year if they have not already done so.
“The demand for personalized investing continues with Millennials leading the way. Investors’ desire to have more control and alignment of investments with their personal views is a major long-term shift that is still in the early innings,” said Botset. “Demand for personalization will be met by different types of products and solutions to meet different investor preferences – there won’t be one silver bullet solution. The takeaway: expect to see new innovations to help investors get where they want to go in the way they want to get there.”
