Most ETF investors more interested in crypto than bonds

ETF investors find crypto funds more attractive than bonds and conservative assets. The latest service by wealth management firm Charles Schwab reveals crypto is near the top when it comes to investment choices. 

Buyers of ETF are more interested in crypto-derived funds than in conservative bonds, according to the Charles Schwab study on ETF investment behaviors and choices. The study encompasses 1,000 investors, 1,000 non-investors, and an additional cohort of 200 respondents who started their buying journey after 2020. The survey was performed online, among investors aged 25 to 75, with at least $25K portfolios.

Crypto is the second most wanted category of ETF after US equities. Out of 2,200 investors and non-investors, 45% stated cryptocurrency will be one of their selected categories of ETF. 

Based on age cohorts, millennial investors show more readiness to invest in risky asset classes. They also choose a wider selection of potential investments, including alternative ETFs. Among millennial investors, 62% of queried participants picked crypto ETF as their top preference. GenX investors and boomers skewed toward US equities as their top preference. 

When picking crypto ETFs, around 39% of investors were ready to buy spot funds. Millennial investors also picked riskier leveraged and long/short ETFs. 

Investors see ETFs as essential to portfolio goals

For more than a decade, ETFs have turned into an agile investment vehicle, targeting both established sources of growth and riskier, trendy assets. ETFs have also tried to track the Bitcoin and crypto market, and have evolved from speculative products to fully regulated entities. 

More than 91% of the Charles Schwab respondents said ETFs are a key part of their portfolio and they will most probably increase their investments. ETFs make up an average of 27% of all portfolios. Millennial investors are once again the leader, with the strongest appetite for this type of investment vehicle. 

The main objectives of investors in the latest study reveal concerns about catching up with inflation and protecting wealth. Volatility, recession fears, and uncertainty around the upcoming US elections are among the drivers of adding more types of ETFs or holding the already established portfolios. 

“ETFs have proven themselves through multiple market cycles and the study findings show investors are confident in their investments even when the outlook is uncertain,” said David Botset, Managing Director, Head of Innovation and Stewardship at Schwab Asset Management.

Compared to last year’s study, the overall ETF trend remains the same, with 40% for equities and 60% for fixed-income assets. There are some shifts in risk-taking as younger cohorts reevaluate their portfolios. Interest in cryptocurrencies is higher compared to 2023, where only 38% of investors showed readiness to buy a crypto ETF. Besides the attraction of the 2024 bull market, crypto-based ETFs also expanded with the launch of Ethereum-based funds. 

Even outside the new crypto ETF, the investment instrument is enjoying overall popularity as an easy entry to investments. ETFs give easy exposure to multiple strategies and are seen as an intuitive instrument for long-term wealth building. 

For millennial investors, this availability of multiple investment fields is key to their personalized investment approach. Charles Schwab noted individualized portfolios, aligned with personal goals and values, are a key focus for millennials. This age cohort is also more confident in picking a portfolio that will outearn the market but is also more anxious about their selections. 

ETF investors also tend to be more optimistic that their chosen investment can outperform, or in a worse scenario recover from recessions and get back on track. ETF investors believe in actively making decisions and relying on education and insights to get the best investment opportunity. 

The global ETF industry grew to more than $12 trillion as of May 2024, with around $10 trillion held in equity ETF. Compared to the industry’s size, the collection of all Bitcoin ETFs is at only $77B, though with a disparate popularity among younger generations of investors. Charles Schwab has tracked the industry for the past 15 years, and issues more than 30 ETFs of its own.

Crypto ETFs are also seen as a more reliable tool for exposure to digital assets. While self-custody and buying coins is still highly accessible, ETFs have a layer of confidentiality due to holding the underlying BTC with third-party custodians. ETFs can also be transferred or inherited, and have a lower potential for loss or hacks compared to holding crypto outright.