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 surveyed index fund investors said they were satisfied with the gains they saw over the past 12 months versus 79% of investors who did not use index funds. Respondents indicated they use index funds for their performance over time (58%), in addition to portfolio diversification (51%), low fees (41%) and managing portfolio risk (36%).
According to Jason Meyer, head of asset owners, consultants and wealth with FTSE Russell, financial advisors should take this as a cue to put more effort into education and outreach surrounding the incorporation of index funds into clients’ portfolios. “The more someone understands a product the more apt they are to incorporate it into their asset allocation or their portfolios. Those without financial advisors or who haven’t discussed indexes with their advisors have been less apt to adapt indexes,” Meyer said. “It begs the question if there is an opportunity for advisors, from an educational perspective, to work with their clients on capturing more of this market that is growing 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 advisors. In addition, 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 that way.
However, fewer investors reported working with a financial advisor in 2024, at 59%, than in 2022, when that 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.
A lack of appropriate recommendations from an advisor can prevent investors from participating in index funds despite their growing popularity. Today, the obstacles that prevent 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 best suited for their needs (34% of respondents) and not getting a recommendation for investment in index funds from their financial advisor (21%). At the same time, 77% of investors who have yet to have a conversation with their advisor about index funds would like to do so.
This is happening as a 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 grown the use of these funds the most since 2022, with 45% of respondents in that age group now using them, up from 27%. That aligns with millennial respondents’ belief that index funds offer the best investment for long-term growth. Thirty percent of millennial responders indicated they view index funds that way versus 20% of Gen X investors and 18% of surveyed baby boomers. 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 don’t currently use index funds plan to invest in them in the future. In addition, 32% of Gen X investors who currently don’t allocate to index funds plan to use them, as well as 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, noted Meyer. This once again highlights the chance for advisors to raise their profile among this group through education and outreach efforts, he said. "We definitely see that there is an opportunity for advisors to capture a broader percentage of the millennial market and the use of index products through education, through outreach, through support because those were cited as some of the reasons for lack of adoption."
The survey, conducted online between May 30 and June 6, 2024, by independent research firm 8 Acre Perspective, included 1,009 U.S. retail investors. The respondents were 25 or older, with a household income of $50,000 or greater and at least $25,000 in investable assets. They were one of the main decision-makers in their households regarding money matters. All surveyed investors owned individual stocks, mutual funds and/or ETFs.
