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Regardless of ongoing investor demand for exchange-traded funds, child boomers look like bucking that development, new analysis reveals. Specialists say there could also be purpose for it.
Solely 6% of surveyed child boomers — these born 1948-1964 — say they plan to “considerably enhance” their ETF investments within the subsequent yr, based on a new study 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 era 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 research 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% have been boomers, 35% have been Gen X and 43% have been millennials.
On the similar time, child boomer households have been the biggest share of mutual fund owners in 2024, at 35% based on a separate report from the Funding Firm Institute. The following-largest mutual fund–proudly owning family generations have 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, mentioned Dan Sotiroff, senior analyst on passive methods analysis at Morningstar. Whereas on the floor it will appear they need to promote their mutual funds and purchase comparable ETFs as a result of they price much less and are tax efficient, 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 mentioned.
“However when you dig a bit of deeper, the reply is perhaps no,” he mentioned. That transfer could show unexpectedly costly.
Why traders favor ETFs
ETFs started gaining traction within the 2000s as a option 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, based on Morningstar Direct.
Whereas mutual funds’ property are a lot greater at $22 trillion, extra money is leaving them than stepping into.
This yr 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 reveals.
A ‘large capital achieve’ for long-term traders
Boomers, who vary in age from 61 to 77 and have been largely the era that started utilizing mutual funds in earnest to spend money on the inventory market, is perhaps sitting on funds they’ve owned for years, if not many years.
In the event that they’ve held these funds in a 401(ok) or particular person retirement account, promoting and shopping for an ETF will not be a taxable occasion as a result of features are tax-deferred and any withdrawals usually are taxed as unusual 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 significant capital gains, that are topic to taxation. Meaning a possible tax invoice that has all types of repercussions when you’re among the many older boomers.
“Should you’ve put, say $20,000 right into a mutual fund years in the past and it is now price $70,000 or $80,000, when you go and promote, that is an enormous capital achieve,” mentioned licensed monetary planner Douglas Kobak, the principal and founding father of Primary Line Group Wealth Administration in Park Metropolis, Utah.
Assuming you’ve got owned the fund for greater than a yr, the expansion could be taxed at a long-term capital gains tax rate of 0%, 15% or 20%, relying in your adjusted gross revenue. In any other case, it is taxed at unusual revenue tax charges.
Positive factors may set off Medicare surcharge
Along with a possible tax invoice, Kobak mentioned, that achieve could push the investor into a better tax bracket, which comes with implications for retirees enrolled in Medicare.
Income-related monthly adjustment amounts, 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 greater revenue.
In 2025, IRMAAs apply to incomes above $106,000 for single tax filers and $212,000 for married {couples} submitting collectively. (Subsequent yr’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, keep in mind that its efficiency will rely upon that of the index it tracks, for higher or worse.
“It is actually a query of, ‘Do I would like that passive strategy in [a particular] asset class relative to what is going on on within the economic system round me, or am I higher off in that lively mutual fund?'” mentioned CFP William Shafransky, a senior wealth advisor with Moneco Advisors in New Canaan, Connecticut.
