ETF investors continue to show strong interest
in personalization; Familiarity with direct indexing grows
Fixed income has been in focus this year and surprisingly,
Millennial ETF investors are gravitating toward this asset class
more than their older peers, according to the 2023 edition of “ETFs
and Beyond,” an annual study by Schwab Asset Management™.
Millennials are not only more interested in learning about fixed
income, but more of them plan to invest in fixed income ETFs in the
next year, and the asset class makes up a larger portion of their
portfolios compared to older generations.
Very interested in learning
more about fixed income
Average percentage of
portfolio invested in bonds/fixed income
Average amount of portfolio
invested in equities
Planning to invest in fixed
income ETFs over the next year
Millennials
50%
Millennials
45%
Millennials
55%
Millennials
51%
Gen X
42%
Gen X
37%
Gen X
63%
Gen X
45%
Boomers
36%
Boomers
31%
Boomers
69%
Boomers
40%
All
44%
All
39%
All
61%
All
47%
ETF Investors Stay the Course
Despite a dramatically different investing environment from
2022, cool heads have prevailed among ETF investors this year.
Rather than retreat in the face of uncertainties, most are staying
the course or finding opportunities to increase investments in
ETFs.
ETF investor response to
market conditions
Has not impacted how I invest
in ETFs
I have put more money into
ETFs
I have taken money out of
ETFs
2023
2022
2023
2022
2023
2022
Market volatility
45%
46%
34%
34%
21%
20%
High interest rates (2023); Rising
interest rates (2022)
49%
50%
32%
32%
19%
18%
High inflation
48%
47%
32%
31%
20%
22%
Recession fears
51%
N.A.
26%
N.A.
23%
N.A.
Geopolitical conflicts (2023); Russia’s
invasion of Ukraine (2022)
61%
63%
22%
24%
17%
13%
“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.”
Following the Money
Schwab Asset Management’s long-running study of ETF investors
finds that cost remains the top factor when choosing an ETF and
overall affinity for ETFs remains high. Eighty percent of ETF
investors agree that ETFs are their investment of choice. The
overwhelming majority (95%) say they are likely to consider
purchasing an ETF in the next two years and about half (52%) say
they have increased their allocations to ETFs in 2023. That said,
ETFs as a share of portfolios has come down slightly from 33% last
year to 29%.
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.
New to the Party
In the years ahead, a significant driver of growth for ETFs may
come from investors who haven’t yet bought their first ETF. Almost
half of non-ETF investors (48%) say they are likely to purchase an
ETF in the next two years, significantly higher than last year
(41%). More than a third (34%) are extremely interested in learning
more about ETFs – up from 27% in 2022. Among non-ETF investors who
are likely to purchase an ETF in the next two years, 62% say the
reason is to diversify their portfolios while 47% say it’s because
ETFs are easy to buy and sell.
Top Reason to Buy ETFs
ETF Investors
Non-ETF Investors
Understanding of ETFs
ETF Investors
Non-ETF Investors
ETFs are easy to buy and sell
71%
47%
Beginner
17%
71%
To diversify portfolio
71%
62%
Intermediate
62%
26%
ETFs are low cost
47%
36%
Experienced
21%
3%
ETFs are tax efficient
43%
34%
“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.
Millennials and ETFs – Next Level Adulting
Millennials’ love of ETFs continues to outpace other generations
across several measures. They continue to be more heavily invested
in ETFs, with 37% of their portfolios in ETFs. Eighty-nine percent
say ETFs are their investment vehicle of choice and about a quarter
of Millennials (22%) plan to significantly increase their
investments in ETFs in the next year. Millennial ETF investors are
broadly comfortable with ETFs, with 99% reporting they are
extremely confident in their ability to choose an ETF that can help
achieve their investment objectives.
ETFs are my investment vehicle
of choice
Percent of portfolio in
ETFs
Significantly increase ETF
investments in next year
Extremely confident choosing
an ETF
Millennials
89%
Millennials
37%
Millennials
22%
Millennials
58%
Gen X
78%
Gen X
25%
Gen X
10%
Gen X
41%
Boomers
67%
Boomers
21%
Boomers
3%
Boomers
29%
The Pull of Personalization
Schwab Asset Management continues to see strong interest in more
personalized investment offerings among ETF investors, with almost
nine in 10 (88%) saying they are somewhat or very likely to
personalize their portfolios more in 2023. Seventy-eight percent
plan to make investments that align with their personal values.
Millennials stand out as being most likely to personalize their
portfolios in the year ahead and believe it is important to align
their investments with their values and beliefs. Most ETF investors
say it is extremely important to have more control over their
investments (65%), greater ability to customize investments (61%),
and that their investments are managed to optimize tax liabilities
(61%).
Interest in direct indexing – an approach to personalized
investing that is quickly gaining traction – remains strong,
particularly among younger generations. Eighty-seven percent of ETF
investors are familiar with direct indexing, up from 80% last year.
Most ETF investors (69%) who are not already invested in a direct
indexing solution say they are likely to invest in one in the next
year. That figure rises to 80% for Millennials who are also much
more likely to be extremely interested in learning about direct
indexing (53%) than Gen X (34%) and Boomers (22%).
Very likely to personalize
portfolios more in 2023
Extremely important that
investments align with beliefs/values
Extremely interested in
learning about direct indexing
Likely to invest in direct
indexing in the next year
Millennials
51%
Millennials
57%
Millennials
53%
Millennials
80%
Gen X
36%
Gen X
36%
Gen X
34%
Gen X
68%
Boomers
21%
Boomers
30%
Boomers
22%
Boomers
48%
“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.”
To read the full report, click Research | About Schwab.
About the Study
Schwab Asset Management commissioned Logica Research to conduct
an online survey 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 and 1,000 of whom
have not bought or sold ETFs within the past two years. The study
was conducted from June 13 – June 28, 2023. 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 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 September 30, 2023, Schwab Asset Management managed
approximately $928.7 billion on a discretionary basis and $30.9
billion on a non-discretionary basis. More information is available
at www.schwabassetmanagement.com.
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.
More information is available at www.aboutschwab.com. Follow us
on Twitter, Facebook, YouTube and LinkedIn.
Disclosures:
Investing involves risk including loss of principal. The
information provided here is for general informational purposes
only and should not be considered an individualized recommendation
or personalized investment advice. The investment strategies
mentioned here may not be suitable for everyone. Each investor
needs to review an investment strategy for his or her own
particular situation before making any investment decision.
Investment returns will fluctuate and are subject to market
volatility, so that an investor’s shares, when redeemed or sold,
may be worth more or less than their original cost. Unlike mutual
funds, shares of ETFs are not individually redeemable directly with
the ETF. Shares of ETFs are bought and sold at market price, which
may be higher or lower than the net asset value (NAV).
Schwab Asset Management™ is the dba name for Charles Schwab
Investment Management, Inc. Schwab Asset Management and Charles
Schwab & Co., Inc. are separate but affiliated companies and
subsidiaries of The Charles Schwab Corporation.
Brokerage Products: Not FDIC Insured • No Bank Guarantee •
May Lose Value
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Christine Underhill Hudacko Charles Schwab 415-961-3790
christine.hudacko@schwab.com
Charles Schwab (NYSE:SCHW)
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