Study finds lack of knowledge about ETFs doesn't hinder growing popularity
Investors may not fully understand exchange traded funds (ETFs), but they have embraced them, according to a new Charles Schwab study. “Eighty-one percent declare that ETFs are “here to stay,” although less than half (45 percent) admit that they have less than a clear understanding them. Thirty-nine percent claim they know more about ETFs than they did a year ago.
“Most investors generally understand that ETFs tend to offer diversification at a low-cost, but many still need more insight and education on how best to use them, the risks involved and potential tax implications,” said Beth Flynn, vice president of ETF platform management at Charles Schwab in a statement.
Investors in the Schwab study signaled they will increase their usage of ETF. Forty-one percent plan to invest more in ETFs in the coming year, with sector and equity funds topping the list as the types of ETFs under consideration. Energy, healthcare and technology are the sector funds investors are most interested in buying, the survey found. Of those surveyed who have an employer-sponsored retirement account, 55 percent want the ability to access ETFs through them. Only 12 percent said they can select ETFs through their employer’s retirement account now.
Just over half (53 percent) of investors who are considering but have not yet purchased an ETF cite that their lack of understanding as the main reason they have not done so. Although 57 percent of those who own ETFs rate their understanding of the products at the intermediate level, almost two-thirds (63 percent) of those considering ETFs classify their knowledge base as ‘novice’.
They most want to know about an ETFs’ tax implications, how best to use ETFs, risks involved, and costs.
According to Millionaire Corner research into the role financial advisors play in ETF investment, affluent investors show a strong preference for mutual funds and individual stocks. Millionaires are more likely than Non-Millionaires to favor ETFs. Ten percent of Millionaire investors indicate that over the next 12 months they are most likely to buy ETFs, as opposed to stocks and mutual funds, compared to 4 percent of investors with less than $100,000 to invest. Millionaires most value ETFs for their lower costs, diversification and liquidity.
Millionaires put a premium on their financial knowledge and this extends to ETFs. Almost one-third (30 percent) of Millionaires said their knowledge of ETFs came from their financial advisors who introduced the subject and discussed the role ETFs could play in their portfolios.
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.