Why index funds and ETFs are good for retirees

A new survey shows an uptick in retirement-aged ETF holdings, for these good reasons

Christine Benz 2 May, 2019 | 2:00PM

Millennial investors were more likely than investors in other age groups to own exchange-traded funds, according to a survey from investment provider BlackRock. Among investors age 21 to 35, 42% said they owned ETFs in 2017, up from 33% of investors in that same age group who said they had ETFs in their portfolios the year prior.

Given that ETFs are a new(er) investment innovation, it’s probably not surprising that the youngest investors would embrace them. What’s unexpected, however, is just how much ETFs have found a home in the portfolios of what BlackRock calls “Silver”-aged investors--people over age 70. Thirty-seven percent of investors within that age band said they owned an ETF in 2017, up from 22% a year earlier. That’s a higher uptake than among generation X investors, 29% of whom said they own ETFs, and baby boomers (27%). While older adults are often characterized as slow to adopt new products and services, that’s definitely not the case with ETFs.

Older adults’ embrace of ETFs may have something to do with the fact that, as retirement approaches, many investors look at their portfolios with a fresh set of eyes and make adjustments accordingly. A portfolio that was geared toward growth in all of those working years is now being tasked with a different job--providing cash flows for living expenses in retirement. That necessitates changes to the portfolio’s asset allocation, which may in turn prompt changes to the underlying investments in the portfolio.

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About Author

Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

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