Millennials and ETFs: Breaking Down the Love Affair

2017-10-21 | Simpler Trading Team

There’s been a big surge in the popularity of exchange traded funds recently.

2017 has seen more than $300 billion going into ETFs.

That’s a new record.

It’s actually more than the inflow into ETFs from the last two years combined.

The biggest reason for that?


Millennials are flocking to ETFs in droves for a variety of reasons.

In 2016, BlackRock conducted a survey among investors which showed that 70 percent of millennials were likely to use ETFs to start their investments. And a separate Charles Schwab & Co. survey from June showed that more than half of millennials said ETFs were their investment of choice. That same Charles Schwab survey showed that only 30 percent of baby boomers felt the same about ETFs.

Trading has changed drastically over the years. Where traders used to idolize Warren Buffett for his activity within the markets and ability to identify winning trades through market analysis over the last 40-50 years, millennials seek a more passive approach without the intensity and volatility of active trading. On top of that, price discrepancies are harder to find today than 10-20 years ago, due to high-frequency and algorithmic trading.

But ETFs, which track an index, commodities, bonds or a basket of securities, offer a more attractive solution for new millennial investors. ETFs have an outstanding track record the last three to five years, and since they minimize the frequency of buying and selling, they’re an obvious choice for new millennial traders.

There’s a perception of millennials as spoiled and entitled, but they’ve actually proven to be quite savvy when it comes to finances, which explains why they’re so interested in ETFs.

For many millennials, exchange traded funds are more reliable as a whole than simply trading stocks. ETFs offer:

Low fees
Instant diversification
Tax advantages

Millennials trading for the first time tend to be limited on funds. ETFs don’t have the same initial minimum purchase requirements as mutual funds, which means a millennial who wants to invest in different areas of the market can do so with ETFs rather than mutual funds, which have that minimum buy.

ETFs also have lower fees than mutual funds and are more liquid. While mutual funds can only be traded after the close of the market, ETFs can trade intraday on exchanges.

Millennials are also keenly aware of the tax advantage of ETFs. These funds don’t have the same capital gains taxes that traders find themselves hit with when trading mutual funds.

ETFs have only been around since 1993. Millennials have grown up with them. They’re safe, familiar, and modern. Millennials are more familiar with these than traditional, old school trading models. As a result, don’t expect millennials to get over them anytime soon. ETFs will continue to be a low-risk trading strategy for years to come.

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