'Financially literate' millennials pile into ETFs

author-avatar By on September 08, 2021
'Financially literate' millennials pile into ETFs

New research has revealed that more millennials are confidently investing in ETFs, with micro-investing apps bolstering the surge.

Exchange-traded funds (ETFs) are being flooded with young investors, with 53% of new investors in the last two years being aged under 39, according to State Street's ETF Investing: 20 Years of Value Creation report.

According to the report, the pandemic was the catalyst, with 63% of millennials increasing their ETF allocation as a result of the pandemic.

A new release by micro investing platform Raiz revealed that young investors are taking control of their investments by utilising the app's 'Custom Portfolio' builder.

Rather than selecting one of the app's seven 'diversified portfolios', these people have gone down the route of 'personalised portfolio asset allocation' by choosing their own investments. 

Of the 12,000 people using this option, 63% are younger than 35.

An ASX study into Australian investors, released in May 2021, also showed that 23% of investors only started investing in the past two years.

The ASX report also revealed that millennials are the 'fastest growing' demographic of investors, with spikes in 'Next Generation Investors' (18 to 24 year olds - Gen Z) and 'Early Wealth Accumulators' (25 to 44 years old).

This growth shows no signs of slowing down, with 45% of 'Next Generation' investors intent on putting their money into ETFs in the next 12 months, according to the ASX's findings.

The Australian Taxation Office (ATO) is 'keenly aware' that micro-investing platforms - such as Raiz, CommSec Pocket, Blossom, and Spaceship Voyager - have largely helped new young investors find their footing.

Raiz Invest Australian CEO, Brendan Malone, said that the popularity of Raiz's custom portfolio tool demonstrates the improving financial literacy of young Australian investors.

"Over time, customers have deepened their financial knowledge and experience in investing, resulting in many more taking control of their investing in our Custom Portfolio option," Mr Malone said.

Spaceship Voyager stated that its most popular age group are people aged between 20 to 39 years old.

ETF provider BetaShares also recently hit a milestone of $20 billion in assets under management (AUM).

It took nine years for the platform to achieve $10 billion, and just 18 months for the next $10 billion AUM to funnel-in.

The company also predicts the total ETF industry will hit $135 billion AUM. 

"Increasing fee pressure along with the annual performance tests required under the recent Your Future, Your Super reforms are likely to encourage the continued adoption of passive investments by Australian institutional investors," BetaShares CEO Alex Vynokur said.

"We expect that over time local institutions will increasingly utilise ETFs and match the high levels of ETF adoption by their overseas counterparts."

Ethical investing front of mind

State Street's findings showed for investors younger than 39, more than half are looking to invest in ESG (Responsible Investing) ETFs over the next year.

In the ASX's profile on 'Next Generation Investors', it said that 19% of investors consider ethical factors when investing, with 12% of all investors considering these factors.

As an example of the importance of ethical investing to young investors, Ellisa Bennett, a 28-year-old Raiz user, said it was the ethical investment opportunities that prompted her to switch to a 'Custom Portfolio'.

BetaShares' latest results also show $900 million of its AUM were  invested 'ethically' this year alone, with its 'Global Sustainability Leaders' ETF (ETHI) nearing the $2 billion mark.


Image by Austin Distel on Unsplash

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author-avatar
Rachel is a Finance Journalist, and joined Savings in 2021. Coming from a background in the FinTech space, her interests include the innovation of lending technology, property, investing, and more. With a passion for educating and informing people about their finances, she hopes to increase the financial literacy of everyday Australians.

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