ETF investors see a future without mutual funds as all-ETF portfolios gain traction

The line between ETF investor and ‘every investor’ is blurring fast as exchange-traded funds aren’t just complementing traditional portfolios, they’re on track to replace them.

Schwab Asset Management’s new 2025 ETFs and Beyond report reveals that 62% of ETF investors can envision holding their entire portfolios in ETFs, with half saying they expect to get there within five years.

Two thirds of respondents started using ETFs within the past five years, and nearly half said they use them to explore targeted or niche strategies outside their core holdings. But cost remains the hook with 94% of respondents who hold ETFs saying that the funds help keep their expenses down.

“The world of investing is undergoing a rapid transformation as individual investors gain access to new asset classes, investing strategies and vehicles. ETF investors are at the forefront of this evolving landscape,” says David Botset, Managing Director, Head of Strategy, Innovation and Stewardship at Schwab Asset Management.

The findings reinforce a growing ‘core-and-explore’ mentality among retail investors, who are using low-cost index ETFs to anchor portfolios while branching into active and thematic funds. Schwab’s research shows nearly equal appetite for index (66%) and active ETFs (65%), highlighting the continued erosion of the wall that once separated the two camps.

Fixed income remains a focus with 40% of investors expecting to boost their bond ETF allocations, up sharply from 2024, as investors brace for a long stretch of elevated interest rates.

And even though mutual funds remain a mainstay in many retirement plans, they’re increasingly becoming a source of liquidity for new ETF investments with many respondents saying they expect to fund ETF purchases by selling mutual funds or individual securities.

Nearly half (49%) of newer ETF investors are Millennials, and that cohort is far more likely to expect an all-ETF future. Two thirds of Millennials say they could move their entire portfolios into ETFs within five years. They’re also the most likely to experiment with single-stock ETFs and spot crypto funds, according to the survey.

“ETFs are no longer the new kid on the block, but they still have a long runway when it comes to investor awareness and adoption,” Botset adds. “More and more investors are learning about the potential benefits of ETFs – including low fees, tax efficiency and tradability.”

However, the same traits that make ETFs attractive, such as accessibility, low cost, and real-time trading, can also encourage more tactical or speculative behavior. The report shows Millennials are more likely than older generations to believe they can beat the market (69% vs. 36% of Boomers).

Nearly half (45%) of ETF investors say they’re highly interested in direct indexing, up from 38% last year. That trend could blur the lines further between passive investing and tailored portfolio construction.

If Schwab’s forecast proves correct, the ETF may soon not just dominate portfolios—it may be the portfolio.