No Matter the Weather: Despite a Perfect Storm of Market Disruptions, Schwab Study Finds Investors Continue to Favor ETFs
ETF investors remain resilient in a challenging market marked by inflation and volatility, with 80% preferring ETFs as their investment vehicle. According to Schwab's study, ETF portfolios have grown from 27% to 33% over five years, with expectations to reach 40% in the next five years. Notably, 93% of ETF investors plan to purchase more ETFs in the next two years. The desire for personalized portfolios is strong, with significant interest in direct indexing and ESG-aligned investments. Millennials show a higher affinity for ETFs, with 41% of their portfolios currently in ETFs and expectations to increase that share further.
- 80% of ETF investors prefer ETFs, an increase from 71% in 2020.
- ETFs comprise 33% of investor portfolios, up from 27% five years ago.
- 93% of ETF investors expect to purchase more ETFs in the next two years.
- 41% of non-ETF investors are likely to invest in ETFs in the near future.
- 46% of ETF investors are interested in direct indexing.
- None.
While their affinity for ETFs remains strong, ETF investors also desire more personalized portfolios
Schwab, which has studied the attitudes and activity of ETF investors for more than a decade, found that ETF investors continue to view ETFs as a key part of their portfolios, with
“ETF investors have continued adding ETFs to their portfolios at a strong clip over the last ten-plus years. This speaks to the strengths of these products and their ability to deliver exposures, cost effectiveness, tradability, and tax efficiency investors seek through multiple market cycles,” said
Top Reason to Buy ETFs |
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Factors ETF Investors Consider Extremely Important When Choosing an ETF |
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ETFs are easy to buy and sell |
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Total cost |
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Low expense ratio |
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To diversify portfolio |
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Reputation of the ETF provider |
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The portfolio manager's experience/track record |
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ETFs are low cost |
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Historical returns of the ETF |
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ETFs are tax efficient |
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How well it tracks to its index |
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ETF investors largely stayed the course with their ETF investments during the first half of 2022 despite a very challenging market environment. About half of ETF investor respondents said that market disruptions — including market volatility, rising interest rates and high inflation — did not impact how they invested in ETFs. Nearly one-third put more money into ETFs in response to these disruptions and around one-fifth took money out of ETFs.
ETF Investor Response to 2022 Market Disruptions |
No impact to ETF investments |
Increased ETF investments |
Decreased ETF investments |
Russia’s invasion of |
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Rising interest rates |
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High inflation |
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Market volatility |
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In the year ahead, ETF investors plan to invest in
The Next Frontier: Personalization
ETF investors are demonstrating an appetite for personalizing their portfolios. If requesting modifications to one’s investments was similar to asking for dressing on the side when ordering at a restaurant,
ETF Investors Feel it is Extremely Important to… |
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Have more control over their investments |
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Have greater ability to customize their investments |
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Know their investments are managed to optimize tax liabilities |
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Align their investments with their personal beliefs and/or values |
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One of the fastest-growing areas of personalized investing is direct indexing and
When it comes to how they will personalize their portfolios in 2023,
“While their appetite for ETFs remains robust, ETF investors are also interested in exploring ways to tailor their investments to their personal situations, goals and preferences,” said Botset. “For some, personalization goals can be met by investing in ETFs that align with their preferences, but for others, new solutions such as direct indexing may offer a more refined approach to meeting their investment and personalization objectives.”
Millennial Snapshot
Schwab has closely followed the attitudes of Millennial ETF investors over the last decade and the research continues to show that this generation has a particular affinity for ETFs. This year’s study found that Millennials are also more interested in personalization than their older counterparts.
Millennial ETF investors have more of their portfolios in ETFs today compared to other generations and they see a larger percentage of their portfolios in ETFs in the next five years compared to Gen X and Boomers. These younger investors are more likely to be extremely confident about their abilities to choose ETFs that can help achieve their investment objectives and to meet their desired investing outcomes. They are primarily focused on building wealth for major life milestones (
Millennial ETF investors show greater levels of interest in aligning their investments with their personal beliefs and values and more of them say they will personalize their portfolios further in 2023. Accordingly, Millennials are more interested in newer approaches to investing that allow for the expression of personal preferences like ESG, thematic investing and direct indexing compared to other generations.
“The Millennial generation’s confidence in selecting and usage of ETFs is high,” said Botset. “Additionally, Millennials report the most interest in personalized options such as direct indexing compared to other generations, their adoption of ETFs continues to grow, and ETFs continue to be the preferred option for many at this stage of their investing lives.”
Generational Snapshot – |
Millennials |
Gen X |
Boomers |
Percent of portfolio in ETFs today |
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Expectations for percent of portfolio in ETFs in next five years | |||
Extremely confident in their ability to choose ETFs that can help achieve their investment objectives |
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Extremely confident in their ability to meet their desired investing outcomes |
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Extremely important to align their investments with their personal beliefs and values |
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Very likely to personalize their investments more in 2023 |
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Extremely interested in learning more about direct indexing |
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Extremely interested in being able to invest in long-term trends or macro themes |
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Interested in ESG-only portfolios |
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Across all generations, many investors who are not invested in ETFs are showing interest, which could boost industry growth as these investors turn interest into action. Nearly three-quarters (
To read the full report, click here.
About the Study
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
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).
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Charles Schwab
415-961-3790
christine.hudacko@schwab.com
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FAQ
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