ETFs make up 27% of ETF investor portfolios today; 65% plan to increase ETF investments in the next year, according to Schwab Asset Management’s 2024 ETFs and Beyond study
Millennial ETF investors have the strongest appetites for ETFs and are most interested in more personalized ways to invest
WESTLAKE, Texas, October 10, 2024--(BUSINESS WIRE)--In a market environment marked by uncertainty, ETF investors are not overly reactive or skittish when it comes to their investments. On the contrary, they demonstrate remarkable calm and steadiness, according to the 2024 edition of "ETFs and Beyond," an annual study by Schwab Asset Management released this year in conjunction with the 15th anniversary of Schwab ETFs.
The research shows that in the face of market drivers like volatility, recession fears, and the upcoming presidential election, ETF investors found opportunities to either lean further in by putting more money into ETFs or — more often — they chose to sit tight with their ETF investing. Another sign of their measured approach: amid the AI craze that swept the markets over the last year, about half of ETF investors say the trend has not impacted how they invest in ETFs.
How have each of the following events impacted your ETF investing so far in 2024?
I have put more money into ETFs
I have taken money out of ETFs
This has not impacted how I invest in ETFs
Growth potential for AI
41%
11%
48%
Market volatility
32%
20%
48%
High interest rates
30%
17%
53%
High inflation
30%
20%
50%
U.S. 2024 Election
26%
12%
62%
Recession fears
25%
21%
54%
Geopolitical conflicts
22%
15%
63%
Almost all ETF investors are somewhat or extremely confident they can meet their investing goals (97%) and most feel confident their portfolios would recover from a deep recession or black swan event (75%).
"We’ve studied ETF investors for more than a decade now, and over that time, they have shown again and again that they take a long-term approach to investing and aren’t easily spooked by market headwinds. ETF investors may be described as Even-keeled, Tempered, and Fearless," said David Botset, Managing Director, Head of Innovation and Stewardship at Schwab Asset Management. "ETFs have proven themselves through multiple market cycles and the study findings show investors are confident in their investments even when the outlook is uncertain."
How They are Investing: Tried and True and New
ETF investors remain true to the classic 60/40 portfolio, with an average of 60% of their portfolios in equities and 40% in fixed income, though there are differences across generations. On average, Millennials have 54% of their portfolios in equities and 46% in fixed income. Overall, Millennials continue to show higher levels of interest in fixed income, with 44% planning to increase investments in fixed income in the coming year compared to 34% of Gen Xers and 26% of Boomers. Millennials’ top reasons for owning fixed income are for diversification (57%), income (56%), and to reduce the level of risk in their portfolios (49%).
ETF investors grew more bullish toward several sectors and styles over the last year, and more of them plan to invest in cryptocurrencies via ETFs. Interest in U.S. equities, bonds, and alternatives held steady.
Asset classes they plan to invest in over the next year
2023
2024
Bullishness toward styles and sectors
2023
2024
U.S. Equities
55%
55%
Technology
60%
69%
Bonds/Fixed income
47%
44%
Magnificent 7
N.A.
55%
Cryptocurrencies
38%
45%
Growth Stocks
52%
60%
Alternatives
19%
19%
Value Stocks
52%
56%
ETF investors report that, on average, slightly less than one-third (31%) of their ETF investments are in actively managed ETFs and most (86%) say they are highly or somewhat likely to pursue actively managed ETFs in the next two years.
Appetite for ETFs Still Strong; New ETF Investors Come into the Fold
An overwhelming majority of ETF investors (91%) say ETFs are a necessary part of their portfolios, and most plan to increase investments in ETFs in the next year (65%). ETF investors predict that 37% of their portfolios will be in ETFs in five years, up from 27% today.
The top reason ETF investors bought or sold ETFs in 2023 was to begin investing and building wealth (28%), potentially indicating that ETFs are viewed as an accessible way to get started by those who are relatively new to investing. Further, ETFs continue to see a steady stream of new adopters: nearly half of non-ETF investors (45%) say they are likely to consider purchasing an ETF in the next two years.
"ETFs have become a well-established part of investor portfolios, yet they continue to see a broadening audience as younger investors turn to these products to begin building their financial futures and as established investors benefit from the diversification, low cost, and flexibility of ETFs," said Botset.
Choosing ETFs: Not a One-Dimensional Proposition
Almost all ETF investors (96%) describe themselves as somewhat or extremely confident in their ability to choose ETFs that will meet their investment objectives, up from 71% a decade ago. When choosing ETFs, total cost once again reigns as the most important factor, while a growing proportion of ETF investors pointed to portfolio manager experience/track record as an important factor in 2024, likely a reflection of the increasing adoption of actively managed ETFs as noted by Morningstar1.
Extremely important factors when choosing an ETF
2023
2024
Total cost
58%
57%
Low expense ratio
52%
52%
How well it tracks its index
51%
51%
Historical returns
48%
49%
Reputation of ETF provider
52%
51%
Portfolio manager’s experience/track record
46%
51%
Cost is important to all ETF investors, but it’s more likely to be "extremely important" to older generations, while Millennials are more likely to consider other characteristics – like an ETF’s investment objective or ability to track its index – to be extremely important. When it comes to the impact of cost on purchase decisions, ETF investors say they’ll choose one ETF over another if it is two to three basis points lower in expense ratio (58%).
Generational differences in what ETF investors consider "extremely important" when choosing an ETF:
Total cost
Low expense ratio
How well it tracks its index
ETF objectives & holdings align with my beliefs
Millennials
52%
Millennials
45%
Millennials
55%
Millennials
48%
Gen X
58%
Gen X
51%
Gen X
49%
Gen X
40%
Boomers
63%
Boomers
64%
Boomers
47%
Boomers
29%
Millennials: The FOMO Generation Continues to be Early Adopters
Millennials report higher levels of interest in a host of ETF types and asset classes, from fixed income to alternatives, cryptocurrency, and smart beta. Millennials are also more enthusiastic about personalizing their portfolios and investing with their values. They have higher levels of interest in direct indexing and are more likely than other generations to invest in direct indexing in the next year.
Plan to invest in alternatives ETFs over next year
Plan to invest in fixed income ETFs over next year
Plan to invest in cryptocurrency ETFs over next year
Plan to invest in smart beta ETFs over next year
Millennials
25%
Millennials
47%
Millennials
62%
Millennials
29%
Gen X
17%
Gen X
42%
Gen X
44%
Gen X
14%
Boomers
11%
Boomers
42%
Boomers
15%
Boomers
10%
Very likely to personalize portfolios more in 2024
Extremely interested in aligning investments with beliefs/values
Extremely interested in learning about direct indexing
Likely to invest in direct indexing in the next year
Millennials
45%
Millennials
56%
Millennials
48%
Millennials
80%
Gen X
40%
Gen X
37%
Gen X
37%
Gen X
67%
Boomers
19%
Boomers
21%
Boomers
20%
Boomers
35%
Millennials report significantly higher levels of confidence. They are more likely to think they have the skills to outperform the markets and more likely to say they prefer to take on more risk for higher returns. At the same time, they are slightly more likely than Boomers to say they feel anxiety when thinking about the market.
I have the skills to outperform the market
When I think about the market, I feel anxiety
I prefer investments with higher potential returns, even if it means greater risk
Millennials
66%
Millennials
30%
Millennials
61%
Gen X
55%
Gen X
26%
Gen X
57%
Boomers
44%
Boomers
26%
Boomers
51%
"Millennials are engaged investors who are proactively building their financial futures. Their affinity for ETFs remains strong, yet they are also open to other investing options such as personalized investing and direct indexing that will help them align their investments with their values," said Botset.
ETF Investors: A Study in Confidence
Compared to those who do not invest in ETFs, ETF investors are more likely to describe themselves as optimistic about the markets, confident that their portfolios would recover from a deep recession, and confident they will reach their desired investing outcomes. Additionally, ETF investors are more likely to describe themselves as experienced or highly experienced investors (40%) compared to non-ETF investors (17%).
Opinions and approach to investing
ETF Investors
Non-ETF Investors
When I think about the market, I feel optimistic
73%
62%
I feel confident that my portfolio would recover from a deep recession or black swan event
75%
58%
Extremely confident that they can meet their desired investing outcomes
49%
30%
"Our study revealed that ETF investors are more confident and more optimistic than non-ETF investors, which likely reflects ETF investors’ high level of engagement with investing and a penchant for education and insights to help them make informed investment decisions," Botset added.
15 Years of Schwab ETFs, 15 Years of Industry Disruption
Schwab Asset Management’s latest insights on ETF investors come as the company marks the 15th anniversary of its family of ETFs. Schwab Asset Management rose to become the fifth largest provider of ETFs2 with a disruptive strategy of driving costs lower and a commitment to growing a focused lineup of foundational products that help meet clients’ core investment needs.
Today, Schwab Asset Management has 31 ETFs, including 10 fixed income offerings, and it continues to leverage its scale and deep capital markets capabilities to grow its offering and challenge the industry on costs.
"Over Schwab Asset Management’s 15 years in the ETF market, we’ve been proud to play a major role in educating investors on the potential benefits of ETFs and in creating an environment where more investors across all generations can experience those benefits through greater accessibility and lower costs," said Botset. "Looking ahead, we see ample opportunity to keep growing our footprint in ETFs and to innovate to help investors achieve their goals wherever they are in their investing journey."
To read the full "2024 ETFs and Beyond" report, click here
About Schwab Asset Management
One of the industry’s largest and most experienced asset managers, Schwab Asset Management offers a focused lineup of competitively priced ETFs, mutual funds and separately managed account strategies designed to serve the central needs of most investors. By operating through clients’ eyes, and putting them at the center of our decisions, we aim to deliver exceptional experiences to investors and the financial professionals who serve them. As of June 30, 2024, Schwab Asset Management managed approximately $1.2 trillion on a discretionary basis and $38.3 billion on a non-discretionary basis.
About the Study
Schwab Asset Management commissioned Logica Research to conduct an online survey of a total of 2,200 individual investors between the ages of 25 and 75 with at least $25,000 in investable assets. 1,000 of whom have bought or sold ETFs in the past two years (ETF investors) and 1,000 of whom have never bought or sold ETFs or have not bought or sold ETFs within the past two years (non-ETF investors). Survey respondents included 200 investors who started investing in 2020 or after. The study was conducted from July 2nd to July 20th, 2024. Survey respondents were not asked to indicate whether they had accounts with Schwab. All data is self-reported by study participants and is not verified or validated. Logica Research is neither affiliated with, nor employed by, Charles Schwab & Co., Inc.
About Charles Schwab
At Charles Schwab we believe in the power of investing to help individuals create a better tomorrow. We have a history of challenging the status quo in our industry, innovating in ways that benefit investors and the advisors and employers who serve them, and championing our clients’ goals with passion and integrity.
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