ETFs increasing in popularity as possible 401(k) options

October 01, 2015 at 12:47 PM
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Has ETFs' time come in 401(k) plans?

It may have, despite the fact that investors might not be all that knowledgeable about exchange-traded funds, according to a John Hancock Investments survey–and advisors don't necessarily bring them up in client conversations.

In a survey of affluent investors, 71 percent of respondents indicated that they would consider adding ETFs to their portfolios, while 51 percent said they were either very interested or somewhat interested in talking with a financial advisor about them.

And among those who are already investing in ETFs, 63 percent say they've incorporated them into their retirement planning; 91 percent of all respondents said their most important goal was ensuring a comfortable retirement.

A Charles Schwab study indicated similar interest among investors who are increasingly replacing stocks and bonds with ETFs.

The 2015 ETF Investor Study by Schwab found that close to a third of those who invest in ETFs say they'll be adding more to their ETF stable in the coming year, and nearly two thirds say they'd consider stock-based ETFs instead of individual stocks in their portfolios.

More than half said they'd actually consider replacing bonds with fixed-income ETFs.

It's clear that ETFs are growing in popularity, and in the first quarter of this year they actually sold more through retail channels than long-term mutual funds.

And their low cost makes them ideal for retirement plans.

In 2014 Charles Schwab launched an ETF 401(k), and the increasing likelihood of explosive growth in that arena is borne out by the Schwab study results, particularly from millennials.

The study found that 59 percent of those who already invest in ETFs currently have investments in an all-ETF portfolio, which was defined as a dedicated account or investment portfolio comprised solely of ETFs.

Nearly a third say they're interested in an all-ETF portfolio that would be created and managed by an advisor, and 41 percent said they'd like to create such a portfolio for themselves—online.

Seventy percent of millennials see ETFs as the core investment type in their portfolio in the future.

In addition, 77 percent say they would consider using stock-based ETFs instead of individual stocks in their portfolios and 69 percent would consider using fixed-income ETFs instead of individual bonds

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