Younger Investors Prefer Mutual Funds Over Exchange Traded Funds


Younger investors greatly prefer mutual funds to exchange traded funds, according to a recent report of ETFs by Spectrem Group.

ETF Investing by the HNW, a Spectrem Group Perspective, indicated that older investors are more heavily invested in ETFs than any other age group, and that the different age groups had different reasons for investing in ETFs or avoiding ETFs.

The study looked at four different age segments: under 44, 45-54, 55 to 64 and 65 and older.

ETFs and mutual funds are similar in that they are both a pool of investment products. Unlike mutual funds, which are only traded at the end of the market day when prices are set, exchange traded funds are traded similar to stocks, with transactions available throughout the business day.

Overall, ETF ownership rose from 16 percent of investors in 2008 to 28 percent of all investors in 2013. Only 24-25 percent of the two younger age segments owned ETFs, while 31 percent of the oldest age group were invested in the alternative investment.

When asked “Which do you prefer most?” the difference was even more stark. Thirty percent of all investors preferred mutual funds, but 44 percent of the youngest age segment chose mutual funds. Forty-seven percent of all investors liked having both ETFs and mutual funds in their portfolio, but only 31 percent of the youngest subset agreed with that statement. Fifty-four percent of the oldest age group said they preferred having both in their portfolio. 

Among investors who did invest in ETFs, the top reason for being invested was the investment record of the fund and the recommendation of advisors, both at 44 percent of respondents. However, while 49 percent of the youngest age segment said the investment record was the reason, only 29 percent said they got involved because of an advisor recommendation.

Where the youngest segment went off the charts was in getting recommendations from family and friends. Twenty-two percent of the 44 and under crowd said it was family and friends who got them involved, while only 7 percent of the total study group said they used advice from relatives and close associates to invest in ETFs.

Fifty-percent of the oldest age segment said they took the advice of a financial advisor to invest in ETFs, significantly above the 44 percent total.

Another indication of the younger age segment’s feelings about ETFs came when asked about redeeming present ETF holdings. While 18 percent of the youngest age group said they would redeem ETF holdings if there was a consistent long-term drop in the stock market, almost twice as many from the youngest age group (33 percent) said that would be the reason to get out.

Going the other way, while 29 percent of the study field said more attractive investment options would make them redeem ETFs, only 13 percent of the youngest age segment said other choices would get them out.

Finally, there was great disparity about moving funds from mutuals to ETFs and vice-versa. Sixty-four percent of the total group said they would move more of their mutual funds into ETFs, and 35 percent said they would go the other way, moving funds from ETFs to mutual. But 78 percent of the 55-64 age segment said they were likely to move more of their mutual funds holdings into ETFs, 14 percent above the average.