September 22, 2025 How Gen Z and Millennials Are Changing 401(k) Investing

Younger Americans reshape 401(k) investing with tech-focused and digital asset ETFs, while Boomers still favor stability.

By Sam Bourgi

As the opportunities of American retirement investing evolve quickly, generational differences in 401(k) strategies are becoming very evident. The traditional image of retirement portfolios dominated by stable, long-established sectors is being reshaped by a wave of younger investors embracing innovative, high-growth themes.

Data from InvestorsObserver reveals interesting trends: Gen Z and Millennials are investing boldly in tech innovation, cryptocurrencies, fintech, and emerging sectors, while Boomers and Gen X maintain a cautious preference for healthcare, real estate, and income-focused funds.

The implications for retirement security and financial outcomes are rather significant. Younger investors benefit from embracing ETFs that offer low fees, broad sector choices, and global diversification.

For example, more than 75% of Gen Z and 81% of Millennials hold ETFs in their retirement accounts, a clear contrast to just 60% of Boomers. What’s more intriguing is the explosion in preferences for crypto/digital asset ETFs and AI/robotics themes, areas where younger generations have doubled their allocations compared to the previous year.

This signals a willingness among younger savers to accept higher volatility in pursuit of outsized returns, with strategies like the YieldMax MSTR Option Income Strategy ETF delivering a stunning 106% return year-over-year.

Complementing these findings, a 2025 article by Investopedia shows that Generation Z is contributing to retirement plans at unprecedented rates, partly due to automatic enrollment policies.

Today’s young workers are twice as likely to participate in 401(k) plans as Millennials were at the same age. This demonstrates a heightened early commitment to retirement savings despite financial challenges many face in the short term.

On the other hand, older investors focus on traditionally “safe” sectors such as healthcare and real estate. Boomers, for instance, favored healthcare-themed ETFs at 39% versus just 27% for Gen Z.

These sectors delivered steady, though more modest, performance with healthcare ETFs posting gains near 12%. The psychological comfort of income-focused strategies also attracts retirees, despite these often underperforming broader market indices.

The JPMorgan Equity Premium Income ETF’s 8% return pales next to the S&P 500’s 12.45%, yet it brought in massive new inflows. This shows how risk tolerance and income needs shape investment choices.

Fund fees further differentiate generational outcomes. Younger Americans’ ETF-heavy portfolios offer a cost advantage, with many top-performing ETFs charging less than 0.10% annually.

On the other hand, mutual funds favored by some Boomers often carry higher fees exceeding 1%, which can significantly erode returns over decades due to compounding.

Active mutual funds with aggressive, niche sector bets, popular among Millennials and Gen Z, show eye-popping returns but come with greater risk and expense – dynamics unfamiliar and less comfortable for older cohorts.

Geographic diversification is another winning factor for younger investors. International ETFs showed exceptional returns, with funds like the Dimensional International Value ETF posting nearly 23% gains.

Greater global exposure both reduces concentration risk and taps into emerging growth markets, aligning with the technological and innovation themes dominating Gen Z and Millennial portfolios.

The pronounced generational divide in investing mirrors evolving attitudes about risk, technology, and economic outlook. A recent MFS Global Retirement Survey 2025 points out that financial advice preferences vary widely by age, with younger cohorts favoring digital tools and personalized financial wellness programs, while Boomers lean on in-person guidance and prefer more established investment vehicles.

Millennials and Gen Z’s willingness to accept short-term volatility is notable, especially given the economic uncertainty posed by inflation and changing market dynamics. According to The New York Times, the early and aggressive 401(k) contributions by young workers, especially women, reveal a cultural shift toward proactive retirement planning – different from their elders who may wait longer to save or invest more conservatively.

Neither approach guarantees “winning” retirement outcomes, but the contrast illuminates a fundamental transformation underway in retirement investing.

The critical takeaway for all investors is to understand the interplay between risk, fees, diversification, and long-term discipline. Choosing portfolios heavily tilted toward technology, innovation, or cryptocurrencies may yield outsized returns but demands fortitude through volatility.

Meanwhile, clinging to “safe” sectors and high-fee funds could risk subpar growth that jeopardizes retirement goals.

With retirement increasingly self-funded through defined contribution plans, investors must recognize that generational preferences signal not only personal risk profiles but also fundamental changes in how future retirees will secure financial well-being.

As younger Americans pioneer new thematic strategies in ETFs, they may be crafting portfolios better tailored to evolving economic realities if they can maintain discipline through inevitable market downturns.

Industry professionals and plan sponsors should be aware of these shifts and incorporate flexible, low-cost, and diversified portfolio options to meet differing generational needs. Education on cost impact and sector risk is key as the divide in retirement investing philosophies deepens.

About the Author
Sam Bourgi is a finance analyst and researcher at InvestorsObserver, bringing over 13 years of expertise in financial markets, economics, and monetary policy. His professional background spans the private, nonprofit, and public sectors, where he has held positions such as senior policy adviser, labor market analyst, and marketing director. Sam’s in-depth research and market analysis have been referenced by leading institutions and organizations, including the U.S. Congress, Department of Justice, Chicago Board Options Exchange, Bank for International Settlements, Boston University Law Review, Barron’s, and Forbes. Sam regularly appears on TV, including CBN, KFYR TV, and ABC30, and is often quoted by such media outlets as the SF Chronicle and MSN.

Read more from the author:

New 401(k) rule could make you richer — or risk it all | August 18, 2025, Daily Journal of Commerce

‘U.S. producers’ margins are falling’ | September 16, 2025, InvestorsObserver

About Investors Observer
Investors Observer is a trusted source of independent financial analysis, market insights, and investment research for individuals and institutions. Founded to empower retail investors with actionable intelligence, InvestorsObserver delivers timely commentary, data-driven studies, and accessible financial tools designed to simplify complex market trends. Its research and insights have been featured by various media outlets, including Yahoo, The Guardian, Morning Star, Nasdaq, and more.

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