Retail investors who use index funds are more satisfied with their investment performance over the past 12 months than investors who use non-index funds, according to a new. FTSE Russell Wealth Survey. The survey found that 91% of index fund investors surveyed said they were satisfied with the returns they saw over the past 12 months versus 79% of non-index fund investors. Respondents indicated they use index funds for their performance over time (58%), in addition to portfolio diversification (51%), low fees (41%) and portfolio risk management (36%).
According to Jason Meyer, head of asset owners, consultants and wealth with FTSE Russell, financial advisers should take this as a signal to put more effort into education and outreach around the inclusion of index funds in client portfolios. “The more someone understands a product, the more inclined they are to incorporate it into their asset allocation or portfolios. Those without financial advisors or who haven't discussed the indexes with their advisors were less likely to adjust the indexes,” Meyer said. “It raises the question of whether there is an opportunity for advisors, from an educational perspective, to work with their clients to capture more of this growing market in terms of adoption.”
The survey found that 94% of retail investors who use advisors are satisfied with them. In addition, 90% of respondents with advisors indicated they were satisfied with their investment performance over the past 12 months, compared to 75% of respondents without an advisor. Additionally, 83% of respondents with advisors felt very or somewhat positive about the expected performance of their investment portfolio over the next 12 months compared to 73% of respondents without advisors who felt this way.
However, fewer investors reported working with a financial advisor in 2024, at 59%, than in 2022, when the figure was 64%. The decline was steepest among millennial investors — 53% of respondents in that age group use an advisor today versus 66% two years ago.
The lack of proper recommendations from an advisor can prevent investors from participating in index funds despite their growing popularity. Today, barriers preventing retail investors from putting their money into index funds include a lack of familiarity with how these products work (42% of respondents), not knowing which index funds are most suitable for their needs (34% of respondents) and not receiving a recommendation for investing in index funds from their financial advisor (21%). At the same time, 77% of investors who have not yet had a conversation with their advisor about index funds would like to.
This is happening as one higher percentage of retail investors use index funds than during a survey conducted in 2022, according to FTSE Russell. In 2024, 39% of respondents indicated they use index funds, up from 27% two years ago. Millennials have the highest allocation to index funds in their portfolios, at 44%, and have increased their use of these funds the most since 2022, with 45% of respondents in that age group now using them, up from 27 %. This aligns with millennial respondents' belief that index funds offer the best investment for long-term growth. Thirty percent of millennial respondents indicated they view index funds that way versus 20% of Gen X investors and 18% of baby boomers surveyed. Among Gen X investors, index funds make up 37% of their portfolios, and among baby boomers, they make up 36%
In addition, 48% of millennials who do not currently use index funds plan to invest in them in the future. Additionally, 32% of Gen X investors who do not currently allocate funds to their index plan to use them, as do 18% of baby boomers.
Millennials have been more likely than older demographics to invest in new and innovative products, including alternatives, crypto and index funds, Meyer noted. This again highlights the opportunity for counselors to raise their profile among this group through education and outreach efforts, he said. “We definitely see there's an opportunity for advisors to capture a broader percentage of the millennial market and use index products through education, through outreach, through support because those were cited as some of the reasons for the lack of adoption.”
The survey, conducted online between May 30 and June 6, 2024, by independent research firm 8 Acre Perspective, surveyed 1,009 US retail investors. Respondents were 25 years of age or older, with a household income of $50,000 or more and at least $25,000 in investable assets. They were one of the main decision makers in their families regarding money matters. All investors surveyed owned individual stocks, mutual funds, and/or ETFs.