As of the end of the third quarter, a staggering $12.66 trillion in assets were allocated to US-listed exchange traded products (ETPs), including exchange traded funds (ETFs). Expect that number to continue climbing as it has annually for three decades.
Obviously, when tens of trillions are discussed, it’s clear that professional investors and registered investment advisors (RIAs) are playing big roles in driving capital to ETFs. That’s true as advisors’ embrace of and, more importantly, devotion to ETFs has been well-documented. However, it’d be wise to remember ordinary novice investors, too.
BlackRock’s newly released People & Money survey notes that ETF adoption is soaring among investors of all stripes, but particularly those that are new to the game. In fact, the asset manager and ETF giant calls ETFs “a gateway” for new market participants.
“According to the analysis, an estimated 24 million Americans2 now own ETFs, representing nearly a quarter (23%) of investors.,” notes the survey.
New Investors Got the Stock-Picking Memo
Many investors will always be allocated to one, a few or many individual equities in additions to funds, but it appears many new investors know that stock-picking is difficult and they’re embracing ETFs to that effect as well as convenience and cost-efficiencies. In fact, stocks and crypto are the top two asset classes new investors are using ETFs to access.
(Image: BlackRock)
There are factors advisors need to acknowledge relating to the intersection of newbies and ETFs. Many rookie investors are starting younger, many will embrace ETFs and younger folks already in the game are likely to boost exposure to ETFs.
“Of respondents – representing an estimated 19 million Americans2 who plan to invest in ETFs over the next 12 months – 44% are predicted to be first time ETF investors, while 56% of current ETF investors plan to increase their allocations,” according to BlackRock. “These new ETF buyers are predicted to start younger and with less income, with 71% of survey respondents under the age of 44. Separately, recent Cerulli data shows that ETFs have become the fastest-growing investment product on digital platforms, outpacing single securities and mutual funds.”
ETFs Help Investors Start Small, Stay Committed
For the most part, old guard pure beta ETFs are diversified or attempt to be, cost-effective and easy for investors of all skill levels to understand. Any and all of those points speak to why so many retail market participants are flocking to ETFs, but there are other reasons.
Investors, particularly those just getting started, are increasingly aware of two things. First, they don’t need significant to get involved. Second, automated/recurring plans can help them reach their long-term goals. ETFs are pivotal on both fronts, indicating the industry likely has decades of growth ahead of it.
“The survey reveals 38% of U.S. investors are interested in recurring investing plans. These approaches offer simplicity, discipline, and alignment with life goals. Investors aged 18-34 are also 50% more likely than those aged over 35 to choose ETFs for the ability to invest small amounts regularly,” concludes BlackRock.