Why Investors Are Piling Money Into ETFs at a Record Pace

After a record-setting 2024, exchange-traded funds, or ETFs, are having another banner year.

Investors continue to pile money into the financial products at an unprecedented rate. With more than 4,300 available in the U.S. — which is also a record — there are now more ETFs on the market than stocks of publicly traded companies. They run the gamut, too, from age-specific ETFs and gold ETFs to others that provide leveraged positions on individual stocks known for their volatility, such as Nvidia and Palantir.

Whether you're already invested in ETFs or considering doing so, you may be wondering: Exactly what about ETFs makes them so popular? And does this mean the era of individual stock-picking is coming to an end?

" I'd argue that that's been the case for a while," says Callie Cox, chief market strategist at Ritholz Wealth Management. "ETFs have proven to the be superior structure for finding market exposure."

Investors are embracing low costs and broad exposure

One reason these funds have exploded in popularity, according to Cox, is that they arguably provide the best combination of affordability and long-term compounding.

"They are notoriously low-cost," she says. "And [ETFs'] increasing sophistication and awareness of how markets work have led to more people adopting them as part of their primary investing strategy."

The median expense ratio for an ETF is 0.9%, according to State Street. But for passively managed index funds, that figure can be dramatically lower. The Vanguard S&P 500 ETF, for example, charges an expense ratio of just 0.03%. Low-fee ETFs continue to attract record inflows, while higher-cost mutual funds saw net outflows of $341 billion from January through November last year.

Of course, the popularity of ETFs doesn't mean everyday investors aren't holding stocks at all. Cox notes that she has plenty of clients, friends and family who passively invest in ETFs — and have "a play account" on the side for individual equities.

However, she says that retail investors need to acknowledge their limitations when it comes to picking individual stocks that can beat the market — a task that studies continue to show is nearly impossible even for professional money managers.

"The average American investor just wants to build a nice nest egg or save enough for retirement," Cox says. "They have learned enough to take a step back and say, 'OK, what do I really want here?' And usually the answer to that is stable, consistent returns over plenty of years by letting compounding do the work for them in a passive ETF."

Meanwhile, individual stock-picking has become increasingly challenging as valuations remain historically elevated and the major indices continue setting all-time highs. Much of that has to do with fewer companies outside of the Magnificent Seven contributing sizable earnings to the S&P 500's growth, making stocks' intrinsic value harder to identify. Cox points to data suggesting that only around one-third of stocks have outperformed the market over the past few years.

Rather than focusing on individual equities, most investors are better off investing in ETFs that provide access to an index's overall returns.

Case in point: The S&P 500 could be on its way to 7,000 by year's end, so index funds that mirror its composition are enjoying sizable gains. VOO, for instance, is up more than 38% since April.

"The [market's] momentum continues to favor ETFs," Todd Rosenbluth, head of research at VettaFi, told Investor's Business Daily. "Flows into ETFs are likely to be even stronger in 2026."

ETFs make asset diversification easy

According to State Street, 45% of individual U.S. investors now hold ETFs in their portfolios. That familiarity has allowed investors to use ETFs to bridge the gap between equity markets and other markets, such as commodities and crypto.

"Despite a strong stock market in 2025, ETF investors have also diversified into non-equity styles," Rosenbluth said. "Gold, bitcoin and fixed income ETFs have been in demand as they provide diversification benefits."

These niche offerings have also helped ETFs achieve record inflows. Specialized products — including a slew of bitcoin and ethereum spot ETFs — continue to see some of the largest growth.

"The bigger brokerages still don't offer crypto assets. So they offer crypto ETFs because that ETF wrapper makes it more palatable from an operations and compliance perspective," Cox says.

The availability of crypto spot ETFs doesn't mean that investors should hold shares without having a functional understanding of the digital asset landscape. But since their 2024 debuts, they have lowered barriers to entry to the crypto market for investors who are more familiar with the equities space.

"It's made a lot of investors more comfortable with the dipping their toes into crypto, which I don't necessarily think is a bad thing," she says. "Crypto ETFs really change the game that way."

ETFs also provide practical exposure to other asset classes, like precious metals, wherein ownership means holding shares rather than physical bars.

This year, gold and silver have outperformed the stock market, setting numerous all-time highs amid a weakening dollar, lingering inflation and geopolitical unrest. Subsequently, ETFs holding those underlying commodities have seen enormous gains. The SPDR Gold Trust is up more than 48% in 2025, while the iShares Silver Trust is up more nearly 59%.

Despite crypto, commodity and other niche ETFs being able to provide diversification, it's important to be cognizant of their supplemental use. While the growing AI-fueled bubble may have some investors reconsidering their exposure to tech stocks, Cox warns against vacating one corner of the market in favor of another — even if that's done broadly with ETFs.

"Diversification works best through addition, not subtraction," she says. "Something is always working in the markets — something is always growing."

For everyday investors, ETFs appear to be the foremost means of embracing that growth.

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