Despite the growing enthusiasm for exchange-traded funds (ETFs) among investors, baby boomers appear to be resisting the trend, according to new research. Experts say their caution may be more strategic than it seems.

A recent study from Charles Schwab found that only 6% of baby boomers — those born between 1948 and 1964 — plan to “significantly increase” their ETF investments in the coming year. In contrast, 32% of millennials (born 1981–1996) and 20% of Generation X investors (born 1965–1980) expressed the same intention. Boomers were also the least likely generation to say they would consider shifting their entire portfolio to ETFs within the next five years, with only 15% open to the idea, compared to 66% of millennials and 42% of Gen Xers.

The Schwab research, which has tracked ETF investing trends for over a decade, surveyed 2,000 investors in 2025 — half of whom already owned ETFs. Among respondents, 16% were boomers, 35% were Gen X, and 43% were millennials.

Meanwhile, a separate report from the Investment Company Institute shows that baby boomers still dominate mutual fund ownership, accounting for 35% of all mutual fund–holding households in 2024. Gen X households followed at 28%, and millennials at 25%.

This generational divide highlights a broader investment dilemma. As Morningstar senior analyst Dan Sotiroff explained, many boomers have accumulated mutual funds over decades and may hesitate to switch to ETFs — even though ETFs are typically more cost-effective and tax-efficient.

“On the surface, it looks like they should sell their mutual funds and move into ETFs,” Sotiroff noted. “But once you dig deeper, you realize that it’s not always that simple.”

The Rise of ETFs

ETFs became popular in the early 2000s as a low-cost, flexible investment vehicle. Like mutual funds, they allow investors to hold a diversified portfolio of assets. The key difference is management style: most ETFs are passively managed, tracking an index, whereas many mutual funds are actively managed by professionals.

The advantages of ETFs include lower expense ratios, better tax efficiency, and the ability to trade shares throughout the day. As of September 30, 2025, ETFs held a total of $12.7 trillion in assets — up from just $1 trillion in 2010, according to Morningstar Direct.

In comparison, mutual funds still hold a larger $22 trillion, but they are losing ground fast. Morningstar data shows that between January and September 2025, mutual funds saw $479 billion in outflows, while ETFs attracted $922 billion in new investments.

Why Boomers Are Staying Put

For many baby boomers — now between 61 and 77 years old — the reluctance to switch stems from tax considerations. Those who began investing in mutual funds decades ago may now be sitting on large unrealized gains.

If these funds are held in tax-deferred retirement accounts like 401(k)s or IRAs, switching to ETFs wouldn’t trigger immediate taxes. However, selling mutual funds held in taxable brokerage accounts can generate significant capital gains — and, consequently, a hefty tax bill.

“For example, if someone invested $20,000 years ago and it’s now worth $80,000, selling that mutual fund means realizing a $60,000 gain,” explained financial planner Douglas Kobak, founder of Main Line Group Wealth Management in Utah. “That could create a major tax event.”

Depending on income, long-term capital gains are taxed at 0%, 15%, or 20%. If the investment has been held for less than a year, the gains are taxed at higher ordinary income rates.

The Hidden Costs of Switching

Beyond capital gains taxes, large withdrawals could push retirees into higher tax brackets, which might increase their Medicare costs. Medicare’s income-related monthly adjustment amounts (IRMAAs) add surcharges to Parts B and D premiums for higher-income enrollees.

In 2025, IRMAAs apply to single filers with incomes above $106,000 and joint filers above $212,000. The surcharges are based on tax returns from two years prior, meaning today’s gains could affect Medicare costs two years down the road.

For retirees on fixed incomes, these extra costs can be a serious deterrent to selling long-held mutual funds.

Passive vs. Active: A Question of Strategy

Another factor influencing boomers’ caution is the difference between active and passive investing. Most ETFs passively track an index, meaning their performance depends entirely on that index’s movements. Mutual funds, by contrast, are often actively managed — which can be an advantage in certain market conditions.

“It comes down to your view of the market,” said William Shafransky, a certified financial planner at Moneco Advisors in Connecticut. “Do you prefer a passive approach that simply tracks an index, or do you want active management that might outperform when the economy shifts?”

For many baby boomers, who built wealth through decades of active mutual fund investing, that philosophical difference still matters. While younger generations gravitate toward ETFs for their simplicity and lower fees, older investors may see value in sticking with strategies that have served them well over time.

In the end, experts agree that the choice between mutual funds and ETFs isn’t purely generational — it’s personal. For baby boomers, the decision often hinges not just on cost or convenience, but on timing, taxes, and the realities of retirement income planning.

As Sotiroff summed up, “For some investors, switching to ETFs makes perfect sense. But for others, especially those nearing or in retirement, holding onto long-term mutual funds may still be the smarter move.”