Next-Gen 401(k): How Millennials and Gen Z Are Chasing Growth and Raising the Stakes

They’re swapping tradition for tech, crypto, and innovation – gunning for bigger rewards and rewriting the rules of retirement investing. 

Vilnius, Lithuania – A seismic shift is underway in American retirement planning. As the classic pension fades away, a new generation of 401(k) investors is rewriting the rules, turbo-charging their retirement accounts with higher-octane choices – and accepting more risk – for a shot at bigger rewards down the road.

Investor preferences for “what goes in a 401(k)” are splitting ever wider by age, according to a new research report from Investors Observer. Data through mid-2025 from fund flows, performance dashboards, and direct investor surveys points to a transformation: Gen Z and Millennials are packing their 401(k)s with cryptocurrency ETFs, fintech, AI, and gaming, while Gen X and Boomers double down on the slow-and-steady script – healthcare, real estate, and broad-market index funds.

Younger Generations Chase Innovation and Volatility

ETFs have become the retirement vehicle of choice, especially for younger savers. The numbers are eye-popping: 75% of Gen Z and 81% of Millennials now hold ETFs in their retirement plans, versus 60% of Boomers. That includes a massive leap in appetite for “digital asset” ETFs, with 59% of Gen Z and 57% of Millennials prefer to allocate a chunk of their nest eggs to crypto funds – numbers that have skyrocketed since 2023, when less than a third favored them. This compares to just 13% of Boomers still avoiding digital currencies.

“We’re at a really pivotal moment,” says Sam Bourgi, a finance analyst and researcher at Investors Observer. “Younger Americans are sprinting toward emerging sectors. They’re willing to ride out more volatility for the chance to capture what’s next – be it AI, crypto, or clean energy. The old playbook of ‘set it and forget it’ just doesn’t resonate in the same way.”

Fund Performance: Where Bets Paid Off…and Backfired

The data shows there’s a reason behind the risk-taking. YieldMax MSTR Option Income Strategy ETF, a favorite among tech-leaning younger investors, delivered a jaw-dropping 105.98% return over the past year – doubling investor money. Tech-focused mutual funds like Fidelity Growth Strategies didn’t lag far behind, up 22% year-over-year. International equity ETFs, such as Dimensional International Value, also provided impressive results, posting 21.44% year-to-date.

Gen Z and Millennials have moved fast, shifting more of their portfolios than any other group into high-growth sectors. From 2023 to 2024, Gen Z’s preference for crypto almost tripled. Millennials boosted their digital asset exposure, fintech, and, notably, gaming – doubling their interest, while Boomers cut their gaming bets in half.

“Frankly, the hunt for yield isn’t just about being flashy or chasing trends,” Bourgi notes. “It’s about cost, too. Most younger investors keep fees ultra-low by favoring ETFs. Over thirty years, that 1% in fees you didn’t pay compounds to an enormous advantage.”

Yet it’s not all winners. Gen X and Boomers, who prefer real estate and healthcare in their 401(k)s, saw more modest gains – just 4% for real estate index funds, though healthcare ETFs held up well with biotech-themed assets returning about 17%. The trade-off? Less volatility, but possibly less growth.

Battle of the Themes: From Clean Energy to Gaming

All age groups have shown new enthusiasm for clean energy and energy transition funds, but Gen Z and Millennials are leading. Nearly half of Millennials and 40% of Gen Z now make these sectors a priority. Meanwhile, Boomers focus more heavily on healthcare and real estate, with almost 40% marking them as top picks.

In emerging fields – digital security, collectibles, and ESG (environmental, social, and governance) – interest skews younger, but growth is steadier, suggesting experimentation with future-facing industries is just beginning.

Fees: The Silent Drain

The research found that low fees are a common thread among today’s top-performing funds. Vanguard’s Information Technology Index charges just 0.09% while posting a 12% return – a stark contrast to specialty mutual funds with fees as high as 1.4% or more. Over decades, those fee differences can lop tens of thousands from a retirement account.

“Fee drag is an invisible anchor. If you’re 25, avoiding high fees now can be as impactful over a lifetime as picking great stocks,” says Bourgi.

No One-Size-Fits-All: Risks and Rewards

While Gen Z and Millennials look well positioned to seize future growth, the strategy isn’t without hazards. More aggressive bets bring greater rewards – but also the risk of steep losses, as seen in sector-specific ETFs tied to volatile assets like Bitcoin or concentrated bets on stocks like Tesla.

On the flip side, older Americans focused on stable, large funds may miss out on the fast growth available in newer themes, especially if higher mutual fund fees pile up and eat into slow-and-steady gains.

This Isn’t Your Parents’ 401(k)

The one constant in the research: Every generation faces trade-offs. Consistent savings and clear-eyed awareness of risk, not just palatable storylines, remain the most important ingredients for retirement. As Bourgi says, “Long-term success isn’t just picking themes. It’s about sticking with your plan, paying attention to costs, and being nimble if the market changes.”

Retirement investing in America is divided. The playing field is wide open, but the best players are adapting and learning quickly, whichever team they’re on.

ABOUT SAM BOURGI

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.

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, Investors Observer delivers timely commentary, data-driven studies, and accessible financial tools designed to simplify complex market trends.