They’re young, and they’ve got the skills, and the bills, to beat the market … or so they say.

Seven in 10 millennial ETF investors told Charles Schwab that they are capable of outperforming the market. However, just over half also said they tactically invest, trading to take advantage of opportunities. Most finance pros can’t outperform over time, but maybe the youth have an inside track. Or maybe with age comes wisdom: Fewer Gen Xers and Baby Boomers made such claims, with 53% and 36%, respectively, boasting of market-smashing prowess. They’ve been around long enough to get burned, or at least see it happen to their peers.

“When many of those millennials came into investing, many of them weren’t deeply invested during any significant market downturn,” David Botset, head of strategy, innovation and stewardship at Charles Schwab Asset Management, told ETF Upside at the firm’s Impact conference in Denver. “It will be interesting to see what the [future] data shows if we go through an extended period of downside.”

Diversifying with Niche Funds

It’s not just investment confidence. There are correlations between generation and taste for alternatives and niche ETFs, according to the survey, which included 1,000 ETF investors and 1,000 who don’t own ETFs. Millennials’ interest in such products “in many respects aligns with being more curious about investment opportunities,” Botset said. But there is now, more than ever, an abundance of ETFs focused on single stocks, crypto, real assets and alternatives, and “it’s also about availability.”

Some of the wider findings:

• 62% of ETF investors said they are considering putting the entirety of their portfolio in ETFs.
• 27% of their investments are in ETFs, on average, but they expect that to increase to 34% in five years.
• The biggest sources of funding for new ETF purchases would be individual stocks (62%), mutual funds (52%), individual bonds (40%) and new cash (38%).

Thrift Shop: Among the biggest factors across all generations in choosing specific ETFs is cost, and concern about it ranks highest among millennials, 28% of whom cited it as their most signficant consideration (compared with 16% of Xers and 7% of Boomers). Overall, investors showed a preference for passively managed funds, but that varied by asset class. While passive was the top choice for US equity, fixed income, developed markets equity and crypto, people leaned toward active for emerging markets equity and alternatives. Still, the explosion of active ETFs has presented a lower-cost option for investors who have eschewed active management in the past, in vehicles like traditional mutual funds, Botset noted.

“It’s one of those things that appear to be making active strategies more acceptable to investors, because they are now coming with a lower cost.”

Morgan Stanley analysts were not about to be left out of Wall Street’s private market gold rush as companies with mind-boggling valuations like OpenAI and SpaceX put off public listings.

On Tuesday, the investment banking giant launched a landing page within its research portal dedicated exclusively to private companies, according to an internal memo sent out by the firm’s global director of research, Katy Huberty, and shared with The Daily Upside. The page will “spotlight the innovators and trends that are reshaping traditional business paradigms and serve as a central hub for clients to access all our private industry research in one place,” the memo said.

Morgan Stanley has been publishing research on private markets since 2017, but it will now expand coverage to deliver deeper analysis and broaden its reach as client interest in unlisted firms grows.

Unicorns Galore

There are currently more than 1,500 active unicorns, privately held startups valued at more than $1 billion, that have raised roughly $1 trillion in venture capital funding, according to data compiled by PitchBook. So it’s no wonder that providing clients with insights into what these companies are up to is becoming a top priority.

In addition to the page launch, two of Morgan Stanley’s analysts who previously focused on public companies have jumped over to digging in on private ones, Bloomberg reported. And at the end of last month, the company announced plans to acquire private shares platform EquityZen.

Morgan Stanley is hardly the first investment research heavyweight to realize that investors are eager for a behind-the-scenes look at how private companies with soaring valuations are faring:

• JPMorgan Chase expanded its research to cover private companies in July. Citigroup followed suit just days later.
• Just last week, Charles Schwab announced it was buying Forge Global Holdings, a private market platform and trading marketplace, for $660 million.

Just the Beginning: “Both institutions and wealth management markets are looking for wide-scale research coverage of the alternative asset management industry and key industries such as private equity, private credit, real estate and energy infrastructure asset classes,” says Ken Leon, director of equity research at investment research firm CFRA. “There will be more firms to follow.”

As millions of Americans approach retirement, they’re starting to take a line right out of Star Wars: “I’ve got a bad feeling about this.”

Retirement is meant to be relaxing, but planning for it is causing growing anxiety. Only 6 in 10 Americans feel financially secure about retirement, according to Allspring’s latest study — a 15% drop from 2023. Women, near-retirees, and younger retirees reported the largest declines, underscoring the need for more personalized planning and financial education.

Those with financial advisors are generally wealthier, healthier and more informed. But for those relying solely on workplace retirement programs or Social Security, planning is trickier. “There is certainly education,” said Nate Miles, head of global client strategy at Allspring. “The question is how much of it is consumed and whether it’s personalized enough to help individuals make optimal decisions.”

Late for Class

A major problem is that many Americans just don’t know what they don’t know:

• Most near-retirees are unaware that delaying Social Security from age 62 to 70 can boost monthly benefits by nearly 80%.
• That’s troubling since Social Security accounts for about 40% of retirees’ income.

“Social Security has been, and will continue to be, a key pillar of retirement income,” Miles told Advisor Upside. “At the same time, good planning over a 30- to 40-year working career should help lessen the significance of the role it plays for future retirees.”

Tax strategy is another weak spot: Only one in five retirees use a tax-efficient withdrawal plan, and about the same have no strategy. While taxes are automatic for W-2 employees, retirees face multiple income streams and must decide how to withdraw funds efficiently. Many lack the knowledge to minimize taxes, making this an area where advisors can provide meaningful value, Miles said.

Off Target. One thing Americans do know is that flexibility matters. Some 84% of near-retirees prefer investment options beyond target-date funds, which are suitable for younger investors, but too simplistic for those nearing the end of their careers. To meet evolving needs, Allspring said defined contribution plans should offer more income-focused options, including core active bond strategies.