Exchange-traded funds (ETFs) are becoming increasingly popular among retail investors in the United States, with usage surging from 31% in 2018 to 47% in 2023, expected to surpass 50% by 2025. A study indicates that millennial and Gen Z investors are increasing market share and redefining investment trends by opting for self-directed investment approaches.

Millennials and Gen Z

The investment landscape in the US is undergoing significant shifts, primarily driven by a younger generation adopting new strategies and tools. Since 2018, there has been a significant rise in self-directed investing, with 23% of assets now managed through online discount brokerage platforms, up from 14% in 2018.

This trend is not limited to young investors alone; high-net-worth individuals also favor self-directed channels, with nearly 25% of assets falling into this category. This shift reflects a general investor preference towards ETFs and US stocks over mutual funds.

For the first time, the proportion of mutual fund assets in individual portfolios is lower than that of stock assets, with ownership dropping from 72% in 2018 to 62% in 2023. The number of millennial investors has increased by 9 percentage points since 2018, poised to surpass Gen X investors.

This demographic change accompanies an increase in the average number of investments held by millennials, rising from six in 2018 to ten in 2023. The democratization of investment is further reflected in the increasing proportion of investors without a college degree, now exceeding 50%.

Gender Dynamics in Investment

Another finding of the study is the comparison of median assets between male and female investors. Female investors now hold higher median assets than males, at $52,105 and $50,271, respectively. This development indicates strengthening financial empowerment among women, highlighting their growing participation in the investment arena.

The allure of mutual funds is waning, especially among young investors. While the baby boomer generation still allocates the highest proportion of assets to mutual funds (39%), younger generations are increasingly inclined towards ETFs and stocks. Since 2018, ownership of stock assets by Gen Z has doubled, while ownership by millennials has more than tripled, with significant increases also seen among Gen X.

The study also underscores the correlation between education and asset ownership. Investors with only a high school diploma hold significantly fewer assets compared to those with a college ($73,044) or graduate degree ($148,399). Despite the rise of self-directed investing, disparities in financial outcomes based on educational attainment persist.