Why Gen Z Prefers ETFs Over Traditional Mutual Funds in 2025
Gen Z — the generation born between 1997 and 2012 — is entering the world of investing with fresh eyes, digital tools, and a strong preference for control and transparency. Unlike their predecessors, they are moving away from traditional mutual funds and turning to ETFs (Exchange Traded Funds). But why?
In 2025, ETFs have become the go-to choice for young investors. From cost savings to flexibility and digital accessibility, this post explores why Gen Z is choosing ETFs over mutual funds.
🧠 What Are ETFs and Mutual Funds? A Quick Recap
Mutual Funds are investment vehicles managed by fund managers. Investors pool money and are charged a fee regardless of performance.
ETFs are similar but trade like stocks. They can be bought and sold in real time, often with lower costs.
📈 7 Reasons Gen Z is Choosing ETFs in 2025
1. 💸 Lower Fees and No Hidden Charges
Gen Z is cost-conscious. They know the difference between 0.75% and 0.15% management fees. Most ETFs have lower expense ratios than actively managed mutual funds.
> Example: Vanguard S&P 500 ETF (VOO) charges 0.03% while many mutual funds still charge 1%+ annually.
2. 📱 Real-Time Control Through Trading Apps
ETFs offer the ability to buy/sell instantly during trading hours, just like stocks. With apps like Robinhood, Webull, and Fidelity, Gen Z loves real-time control over their portfolios.
Mutual funds, on the other hand, only trade once per day — too slow for this fast-moving generation.
3. 🌍 Access to Thematic & Global Investments
Whether it’s clean energy, AI stocks, or crypto-adjacent ETFs, there’s an ETF for every trend.
Gen Z wants their investments to align with personal values and global trends — not just standard portfolios of bonds and large-cap stocks.
4. 💻 Digital-First Experience
Mutual funds often require paperwork or clunky websites. ETFs are integrated seamlessly with modern platforms.
> Think: no physical signatures, no calls with advisors — just tap, swipe, and invest.
5. 🧠 Education & Transparency
ETFs publish their holdings daily. Gen Z loves knowing exactly where their money is going. Many mutual funds reveal holdings only once a month or quarter — that’s too opaque.
6. 🔄 Tax Efficiency
ETFs use a “creation/redemption” mechanism that avoids triggering capital gains taxes. Mutual funds? Not so lucky. Many young investors are realizing the tax advantages of ETFs in 2025.
7. 🪙 Fractional Investing
Platforms now allow fractional investing in ETFs — meaning you can invest with as little as $1. This democratizes access for Gen Zers who may not have large sums but want to start early.
👨🏫 What About Performance?
ETFs typically match the index they follow — think S&P 500, Nasdaq 100, etc.
Mutual funds try to beat the market — and often fail after fees. Gen Z prefers market performance at low cost over promises of “outperformance” that rarely pan out.
🧮 Top ETFs Gen Z Loves in 2025
Here are some of the most popular ETFs in Gen Z’s portfolio:
ETF Theme Expense Ratio Platform Favorite
VOO S&P 500 Index 0.03% Vanguard, Robinhood
QQQ Tech-heavy Nasdaq 100 0.20% Fidelity, Webull
ARKK Innovation/Disruptive Tech 0.75% Public.com
ICLN Clean Energy 0.40% Charles Schwab
SCHD Dividend Growth 0.06% TD Ameritrade
💼 Is There Still a Place for Mutual Funds?
Yes — especially for:
Retirement plans (401k) where mutual funds are the default.
Investors who prefer human advice and don’t actively manage their money.
Conservative portfolios with a focus on capital preservation.
But for DIY investors, ETFs remain the clear favorite in 2025.
📊 What Gen Z Is Saying (Social Trends)
“Why would I pay 1% to a fund manager when I can get the same return with an ETF at 0.03%?”
— Reddit (r/investing)
“I started investing with just $5 a week using ETFs — now I own pieces of Google, Tesla, and Apple.”
— TikTok Creator, 23 y/o investor
✅ Final Thoughts: ETFs Are Gen Z’s Mutual Fund Replacement
Gen Z isn’t just changing the way we consume — they’re also changing how we invest. ETFs are transparent, digital-first, low-cost, and accessible — a perfect match for a generation raised on speed, control, and minimalism.
If you’re still stuck in the old world of mutual funds, it might be time to reconsider your portfolio. The ETF revolution is here, and Gen Z is leading the charge.
📢 Disclaimer
This article is for informational purposes only and does not constitute financial advice. Please consult a financial advisor before making any investment decisions.