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Despite the popularity of exchange-traded funds (ETFs) among investors, these investment vehicles have yet to make significant inroads with 401(k) plan participants. ETFs have grown to about $10 trillion in assets since their debut in the early 1990s, representing a 32% market share of total assets in comparison to mutual funds. However, when it comes to workplace retirement plans, ETFs have not gained much traction.
At the end of 2023, 401(k) plans held $7.4 trillion in assets, with over 70 million participants. Despite the substantial amount of money in these plans, ETFs make up only a tiny fraction of the investment options available to participants. While ETFs offer advantages like tax benefits and intraday trading capabilities over mutual funds, these benefits are deemed irrelevant within the context of 401(k) plans.
The decision of which investment funds to offer in 401(k) plans is made by the employer, limiting the availability of ETFs to participants who prefer them. Furthermore, the traditional infrastructure of workplace retirement plans may not be conducive to accommodating the features of ETFs, such as intraday trading. Additionally, the fee structure of ETFs differs from mutual funds, with ETFs having only one share class and individual line items for expenses, which may not align with investors’ preference for simplicity in fee structures.
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Emily Jensen, graduated from the London School of Economics and Political Science (LSE) in the UK in 2015 with a degree in Economics. She specializes in financial markets and international trade. After graduating, she worked as an analyst at an investment bank in London, where she developed expertise in global economic trends. She later transitioned into consulting, focusing on fintech ventures and providing insights into global economic developments. Emily is passionate about the intersection of finance and technology and aims to drive innovation in the financial sector.
