SCHW Charles Schwab Corporation

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

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.

More information is available at www.aboutschwab.com. Follow us on Twitter/X, Facebook, and LinkedIn.

Disclosures:

Investors should consider carefully information contained in the prospectus or, if available, the summary prospectus, including investment objectives, risks, charges, and expenses. You can obtain a prospectus by visiting schwabassetmanagement.com/prospectus. Please read it carefully before investing.

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).

Diversification strategies do not ensure a profit and do not protect against losses in declining markets.

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.

Schwab Asset Management® is the dba name for Charles Schwab Investment Management, Inc., the investment adviser for Schwab ETFs. Schwab ETFs are distributed by SEI Investments Distribution Co. (SIDCO). Schwab Asset Management is a separate but affiliated company and subsidiary of The Charles Schwab Corporation and is not affiliated with SIDCO.

Investment and Insurance Products: Not a Deposit • Not FDIC Insured • Not Insured By Any Federal Government Agency • No Bank Guarantee • May Lose Value

__________________ 1 Source: Active ETFs: Where to Find the Best Investment Opportunities | Morningstar 2 Source: VettaFi, ETF Issuer League Table by AUM, September 27, 2024.

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Christine Underhill Charles Schwab 415-961-3790