Personal Finance
Two things Gen Z and millennial ETF investors should watch for, experts say
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John Healy began investing in exchange-traded funds when he was about 18 years old.
Back then, Healy said he worked as a security guard in a beach club earning an hourly wage of “$12 a pop” and relied on message boards on the internet to figure out what to buy or sell.
Today, Healy is a 25-year-old law clerk in New York City with a financial planner guiding his investments.
What hasn’t changed? His interest in baskets of securities designed to closely track an index.
“ETFs are still a vehicle for me to get action in the stock market,” Healy said.
He’s not alone. Young investors are tapping into exchange-traded funds at high rates.
According to an annual report by Nasdaq, millennials and Gen Zers are the two most likely generational groups to have ETF holdings in their retirement accounts, at 81% and 75%, respectively.
The survey polled 2,000 U.S. retail ETF investors in March. The report defines millennials as those born between 1981 and 1996, and Gen Z as those from 1997 to 2021.
The trend been growing for the past three years, or since Nasdaq has been conducting the report, said Alison Hennessy, head of exchange-traded product listings at Nasdaq.
“The continued growth of retail investors investing in ETFs is certainly not going away,” she said.
Why ETFs have gained popularity
ETFs listed in the U.S. hit a record-breaking $900 billion in inflows and about 600 ETF launches this year, according to ETF.com.
The investment vehicle has been growing in popularity among investors in general in part due to the lower associated costs, tax benefits and accessibility compared to mutual funds, experts say.
“What really attracts investors to the ETF structure in general is, they’re easier to buy and sell directly on a brokerage account,” Hennessy said.
The same can’t be said for a mutual fund, experts say.
If you’re an active investor, you have the ability to make intra-day trades with an ETF, whereas a mutual fund won’t actually process your buy or sell order until after market close, explained Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.
Meanwhile, associated fees with ETFs tend to be much lower compared to mutual funds and other index funds.
Index ETFs have a 0.44% average annual fee, half the 0.88% fee for index mutual funds, according to Morningstar. Similarly, active ETFs carry a 0.63% average fee, versus 1.02% for actively managed mutual funds, Morningstar data shows.
And ETFs do not typically trigger capital gains taxes, Lucas said.
“That’s what makes them so tax efficient,” he said. “For younger investors, you know really what you’re getting and there’s no surprises.”
When Healy began investing as a teenager, he was mostly driven to do so by his parents, who instilled in him the value of saving and investing his money, Healy said.
“Now I’m living on my own, and I have my own personal finances to worry about,” he said.
Gen Z investors who are starting out need to keep in mind two elements, according to experts.
1. Research what your exposure could be
There are more than 3,800 U.S.- listed ETFs available in the market now, and a perk to consider is their transparency, said Hennessy.
“The vast majority of ETFs are disclosing their holdings,” or what’s held in their portfolio, she said.
To find out what sectors, companies, industries or risks you may be exposed to, look up the information on the ETF issuer’s website, Hennessy said.
For example, say a fund’s name includes the term “international.” You may want to know what countries or classifications the fund focuses on.
“You have the ability to really drill down and look at the exact holdings in the fund,” Hennessy said.
2. Take note of ‘wash sale rules’
Be mindful about so-called “wash sale rules,” Lucas said.
The IRS guidelines essentially blocks you from writing off a loss if you repurchase the same or an identical security within a 30-day window before or after the sale, he explained.
If you sell an ETF at a loss, and you buy it back or a similar one within that time period, you cannot get the benefit of the tax loss.
It can be easier to get around wash sale rules with an ETF compared to mutual funds, but you need to be careful how you handle it, experts say.
“That loss that you would of taken just gets added to your cost basis to potentially take later,” Lucas said.
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Some states have stopped disbursing funds to consumers via Biden-era rebate programs tied to home energy efficiency, due to a Trump administration freeze on federal funding enacted in January.
The Inflation Reduction Act, passed in 2022, had earmarked $8.8 billion of federal funds for consumers through two home energy rebate programs, to be administered by states, territories and the District of Columbia.
Arizona, Colorado, Georgia and Rhode Island — which are in various phases of rollout — have paused or delayed their fledgling programs, citing Trump administration policy.
The White House on Jan. 27 put a freeze on the disbursement of federal funds that conflict with President Trump’s agenda — including initiatives related to green energy and climate change — as a reason for halting the disbursement of rebate funds to consumers.
That fate of that freeze is still up in the air. A federal judge issued an order Tuesday that continued to block the policy, for example. However, it appears agencies had been withholding funding in some cases in defiance of earlier court rulings, according to ProPublica reporting.
In any event, the freeze — or the threat of it — appears to be impacting state rebate programs.
“Coloradans who would receive the Home Energy Rebate savings are still locked out by the Trump administration in the dead of winter,” Ari Rosenblum, a spokesperson for the Colorado Energy Office, said in an e-mailed statement.
The U.S. Department of Energy and the White House didn’t return a request for comment from CNBC on the funding freeze.
In some states, rebates are ‘currently unavailable’
Consumers are eligible for up to $8,000 of Home Efficiency Rebates and up to $14,000 of Home Electrification and Appliance Rebates, per federal law.
The rebates defray the cost of retrofitting homes and upgrading appliances to be more energy efficient. Such tweaks aim to cut consumers’ utility bills while also reducing planet-warming carbon emissions.
California, the District of Columbia, Maine, Michigan, New Mexico, New York, North Carolina and Wisconsin had also launched phases of their rebate programs in recent months, according to data on an archived federal website.
All states and territories (except for South Dakota) had applied for the federal rebate funding and the U.S. Department of Energy had approved funding for each of them.
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The Arizona Governor’s Office of Resiliency said its Home Energy Rebates programs would be paused until federal funds are freed up.
“Due to the current federal Executive Orders, memorandums from the White House Office of Management and Budget, and communications from the U.S. Department of Energy, funding for all Efficiency Arizona programs is currently unavailable,” it said in an announcement Friday.
Rhode Island paused new applications as of Jan. 27 due to “current uncertainty” with Inflation Reduction Act funding and executive orders, according to its Office of Energy Resources.
The Georgia Environmental Finance Authority launched a pilot program for the rebates in fall 2024. That program is ongoing, a spokesperson confirmed Monday.
However, the timeline for a full program launch initially planned for 2025 “is delayed until we receive more information from the U.S. Department of Energy,” the Georgia spokesperson explained in an e-mail.
However, not all states have pressed the pause button: It appears Maine is still moving forward, for example.
“The program remains open to those who are eligible,” Afton Vigue, a spokesperson for the Maine Governor’s Energy Office, said in an e-mail.
The status of rebates in the eight other states and districts to have launched their programs is unclear. Their respective energy departments or governor’s offices didn’t return requests for comment.
‘Signs of an interest’
While the Trump administration on Jan. 29 rescinded its memo ordering a freeze on federal grants and loans — two days after its initial release — the White House said the freeze nonetheless remained in full force.
Democratic attorneys general in 22 states and the District of Columbia filed a lawsuit against the Trump administration, claiming the freeze is unlawful. The White House has claimed it is necessary to ensure spending aligns with Trump’s presidential agenda.
David Terry, president of the National Association of State Energy Officials, said he is optimistic the rebate funding will be released to states soon.
“For these two particular programs, I do not think [the freeze] will stymie the programs,” Terry said. “I see signs of an interest in moving them forward and working with the states to implement them.”
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Lump sum payments to begin arriving in February
In a new update released on Tuesday, the SSA said it will begin issuing retroactive payments in February. Most people will receive the one-time payment by the end of March, according to the agency.
The SSA plans to process the increase to monthly benefits starting in April.
The new timeline “supports President Trump’s priority to implement the Social Security Fairness Act as quickly as possible,” Social Security acting commissioner Lee Dudek said in a statement.
“The agency’s original estimate of taking a year or more now will only apply to complex cases that cannot be processed by automation,” Dudek said. “The American people deserve to get their due benefits as quickly as possible.”
Among those affected include some teachers, firefighters and police officers in certain states; federal employees who are covered by the Civil Service Retirement System and people who worked under foreign social security systems, according to the Social Security Administration.
What affected beneficiaries should know
Retroactive payments, which most people should receive by the end of March, will be deposited directly into bank accounts on file with the Social Security Administration.
All affected beneficiaries should receive a notice by mail from the Social Security Administration with details about their retroactive payment and new benefit amount. Those notices should come two to three weeks after the retroactive payments, according to the agency.
If your direct deposit information or current mailing address are up to date with the agency, no action is needed, according to the agency. If you want to double check the information the agency has on file, you may sign into your personal online account or call the agency.
If you want to ask about the status of your retroactive payment, the Social Security Administration urges you to hold off until April.
Beneficiaries should also wait until after they have received their April monthly check before contacting the agency to ask about their new benefit amount.
The average tax refund is 10.4% lower than last year according to the latest Internal Revenue Service data, and inflation is taking more of those dollars.
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The average tax refund this year is down 32.4% compared to last year, according to early filing data from the IRS.
Tax season opened on Jan. 27, and the average refund amount was $2,169 as of Feb. 14, down from $3,207 about one year prior, the IRS reported on Friday. That figure reflects current-year refunds only.
However, the Feb. 14 filing data doesn’t include refunds receiving the earned income tax credit or additional child tax credit, which aren’t issued before mid-February, the IRS noted. The previous year’s filing data included tax returns claiming these credits. The value of these tax breaks can be substantial, even resulting in five-figure refunds, in some cases.
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Typically, you can expect a refund when you overpay taxes throughout the year via paycheck withholdings or quarterly estimated payments. By comparison, there’s generally a tax bill when you haven’t paid enough.
Filing season numbers will ‘even out’
Although the average refund is currently smaller, “historically, filing season numbers even out as more tax returns come in,” according to the agency.
As of Feb. 14, the IRS received roughly 33 million individual tax returns of the more than 140 million it expects before the April 15 deadline.
As of Dec. 27, 2024, the average tax refund for the 2024 season was $3,138, compared to $3,167 in late December 2023.
‘Don’t call the IRS’ for refund updates
The latest filing statistics come amid mass layoffs for the agency as Elon Musk’s so-called Department of Government Efficiency, or DOGE, continues to cull the federal workforce.
It’s unclear exactly how the staffing reduction could impact future taxpayer service. But experts recommend double-checking returns for accuracy to avoid extra touch points with the agency.
“Don’t call the IRS looking for your refund,” said Tom O’Saben, an enrolled agent and director of tax content and government relations at the National Association of Tax Professionals.
You can check the status of your refund via the agency’s “Where’s My Refund?” tool or the IRS2Go app, which is “available 24 hours a day,” O’Saben said.
Typically, the agency issues refunds within 21 days of a return’s receipt. But some returns require “additional review,” which can extend the timeline, according to the IRS.
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