Child boomers are much less bullish on ETFs than youthful generations, analysis finds — with good motive

Regardless of ongoing investor demand for exchange-traded funds, child boomers seem like bucking that pattern, new analysis exhibits. Consultants say there could also be an excellent motive for it.

Solely 6% of surveyed child boomers — these born 1948-1964 — say they plan to “considerably improve” their ETF investments within the subsequent 12 months, in response to a new examine from Charles Schwab. That compares with 32% of millennials — these born 1981-1996 — and 20% of Era X, born 1965-1980.

Boomers are additionally the technology least prone to say they’re open to placing their whole portfolio in ETFs within the subsequent 5 years, with 15%, versus 66% for millennials and 42% for Gen X.

Schwab’s analysis examine into ETF investing has been ongoing for greater than 10 years. In 2025, it collected responses from 2,000 traders: 1,000 who take part in ETFs and one other 1,000 who do not. From that pattern, 16% had been boomers, 35% had been Gen X and 43% had been millennials.

On the similar time, child boomer households had been the most important share of mutual fund homeowners in 2024, at 35% in response to a separate report from the Funding Firm Institute. The subsequent-largest mutual fund–proudly owning family generations had been Gen X, at 28%, and millennials, at 25%.

And therein lies the friction: Child boomers personal plenty of mutual funds — and possibly have for a very long time, stated Dan Sotiroff, senior analyst on passive methods analysis at Morningstar. Whereas on the floor it might appear they need to promote their mutual funds and purchase comparable ETFs as a result of they price much less and are tax environment friendly, specialists say not so quick.

“On the floor, the reply might be sure,” that they need to change their mutual fund property to comparable ETFs, Sotiroff stated.

“However when you dig a bit of deeper, the reply could be no,” he stated. That transfer could show unexpectedly costly.

ETFs started gaining traction within the 2000s as a strategy to spend money on a fund with a mixture of underlying investments, just like their cousin, mutual funds. Whereas many mutual funds are actively managed — which means professionals are on the helm choosing the investments — most ETFs are passively managed as a result of they observe an index, and efficiency is predicated on that of the index.

Usually, the benefit with ETFs is their decrease price, tax effectivity and intraday tradability. As of Sept. 30, ETFs held $12.7 trillion in property, up from $1 trillion on the finish of 2010, in response to Morningstar Direct.

Whereas mutual funds’ property are a lot larger at $22 trillion, more cash is leaving them than moving into. 

This 12 months by way of Sept. 30, mutual funds noticed an outflow of $479.4 billion, in contrast with ETFs taking in $922.8 billion in new cash, Morningstar knowledge exhibits.

Boomers, who vary in age from 61 to 77 and had been largely the technology that started utilizing mutual funds in earnest to spend money on the inventory market, could be sitting on funds they’ve owned for years, if not many years.

In the event that they’ve held these funds in a 401(okay) or particular person retirement account, promoting and shopping for an ETF is just not a taxable occasion as a result of beneficial properties are tax-deferred and any withdrawals typically are taxed as atypical revenue (or are tax-free in a Roth) in retirement.

But when these mutual funds are in a brokerage account — and have been for a very long time — the proprietor could also be sitting on important capital beneficial properties, that are topic to taxation. Meaning a possible tax invoice that has every kind of repercussions when you’re among the many older boomers.

“In case you’ve put, say $20,000 right into a mutual fund years in the past and it is now value $70,000 or $80,000, when you go and promote, that is an enormous capital acquire,” stated licensed monetary planner Douglas Kobak, the principal and founding father of Principal Line Group Wealth Administration in Park Metropolis, Utah.

Assuming you have owned the fund for greater than a 12 months, the expansion could be taxed at a long-term capital beneficial properties tax price of 0%, 15% or 20%, relying in your adjusted gross revenue. In any other case, it is taxed at atypical revenue tax charges.

Along with a possible tax invoice, Kobak stated, that acquire could push the investor into the next tax bracket, which comes with implications for retirees enrolled in Medicare. 

Revenue-related month-to-month adjustment quantities, or IRMAAs as they’re referred to as, are added to the usual premiums for Half B outpatient care protection and Half D prescription drug protection for enrollees with larger revenue.

In 2025, IRMAAs apply to incomes above $106,000 for single tax filers and $212,000 for married {couples} submitting collectively. (Subsequent 12 months’s specifics haven’t been launched but.) The upper the tax bracket, the better the surcharge quantity. And, your tax return from two years earlier is used to find out whether or not you pay IRMAAs.

Moreover, when you could be promoting an actively managed mutual fund for a passively managed ETF, do not forget that its efficiency will depend upon that of the index it tracks, for higher or worse.

“It is actually a query of, ‘Do I need that passive method in [a particular] asset class relative to what is going on on within the financial system round me, or am I higher off in that lively mutual fund?'” stated CFP William Shafransky, a senior wealth advisor with Moneco Advisors in New Canaan, Connecticut.