Self-Directed Millennials Invested More in Cash, ETFs Than Older Investors

Schwab's Q3 report shows mutual funds still held the highest percentage of participant assets.

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Millennials allocated a larger percentage of their portfolios to exchange-traded funds and cash during the third quarter than did older investors, according to Charles Schwab’s quarterly report on retirement plan participant investment activity within self-directed brokerage accounts.

The report, released Tuesday, showed that millennials allocated 24% of their portfolios to ETFs, compared with 20% for Gen Xers and 17% for baby boomers, and allocated 16% to cash, compared with 14% and 12% for older investors.

Boomers held approximately 4% of their portfolios in fixed income, followed by 1% for Gen Xers and 0.8% for millennials.

SDBAs are brokerage accounts within retirement plans — including 401(k) and other types of retirement plans — that participants can use to invest in stocks, bonds, ETFs, mutual funds and other securities that are not part of their retirement plan’s core investment offerings.

(Related: 10 Investment Tax Facts You Should Know)

The report included data collected from some 142,000 retirement plan participants with current balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Accounts.

Gen X comprised approximately 42% of SDBA participants, boomers 39% and millennials 13%.

According to the Schwab data, mutual funds held the highest percentage of participant assets during the third quarter, about a 39% allocation by boomers, 36% by Gen Xers and 34% by millennials.

Equities were the second-largest allocation for all portfolios, with boomers and Gen Xers holding approximately 28% in their portfolios and millennials 25%.

Here are the top three equity holdings for the three generations of investors:

U.S. broad funds were the most popular ETFs, according to the report. The top ETF holdings for all three generations were Schwab U.S. Broad Market ETF, SPDR S&P 500 ETF and Vanguard Total Stock Market ETF.

In addition, all three generations continued to hold the Schwab S&P 500 Index Fund as their top mutual fund, followed by the Schwab Total Stock Market Index Fund.

Other Findings

The average third quarter SDBA balance for all participants was $276,929, nearly identical to the second quarter average balance and 1% above that of the 2018 third quarter.

Boomers had the highest SDBA balances at an average of $394,064, followed by Gen Xers at $213,018 and millennials at $68,756.

The report said that 22% of boomers, 21% of Gen Xers and 15% of millennials used an advisor to manage their SDBA.

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