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U.S. retirement investors favor mutual funds

Mutual funds are king among U.S. investors, especially those participating in employer-sponsored retirement plans. That’s good news for sponsors, as this trend demonstrates the significance of workplace retirement plans as a conduit for fund investing.

That’s according to a 2016 survey of U.S. households, which also found that 45% of mutual fund-owning households headed by Millennials held their funds in a workplace retirement plan like a 401(k), compared to 34% headed by Baby Boomers. A full 71% of households that bought a mutual fund in 2010 or later did so through an employer-sponsored plan, whereas 56% made an initial mutual fund purchase in their workplace plan before 1990. Based on those figures, it’s clear that employer-sponsored retirement plans have indeed influenced younger workers’ investing behaviors.

In fact, the survey found that Millennials purchased their first mutual fund at a younger age than their Boomer counterparts. Further, each successive generation made an initial mutual fund purchase earlier in life: The median age was 23 among Millennial households, while it was 27 for Generation Xers and 30-something for Boomers.

The survey also revealed that a vast majority of U.S. households owned mutual funds in mid-2016—approximately 55 million representing 94 million individual investors—despite the growing popularity of alternative investment instruments like exchange traded funds (ETFs) and a rising awareness of low-fee options like robo-advisors and self-directed trading platforms.

Baby Boomers accounted for the lion’s share of mutual fund owners, and their hefty representation among U.S. households’ total assets is reflective of the fact that they’ve had many more years to invest and accumulate wealth than their Generation X and Millennial counterparts. During the survey period (May-July 2016):
  • Almost half of the more than 43 million Boomer-headed households counted mutual funds among their holdings, comprising half of U.S. households’ total mutual fund assets.
  • Thirty-five percent of the nearly  29 million households headed by Millennials were mutual fund owners, accounting for 6% of total household mutual fund assets.
  • Generation X’s mutual fund holdings comprised 29% of the total household mutual fund assets, with half of their nearly 35 million households owning these investments.
More Key Findings
The research included other important findings, such as:
  • U.S. households were three times  more likely to hold mutual funds in  tax-deferred accounts than not—again good news for plan sponsors, as this reflects workers’ propensity to invest in mutual funds inside of a workplace retirement plan.
  • More than 44% of U.S. households owned shares of U.S.-registered investment companies, including mutual funds, ETFs, closed-end funds and unit investment trusts (UITs).
  • Fifty-one percent of U.S. mutual fund owners were in their prime accumulation years—those age 35 to 64 headed 63% of households that owned mutual funds—and earned moderate to lower incomes of less than $100,000.
 The survey results were released in two studies from the Investment Company Institute (ICI): “Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2016,” and “Characteristics of Mutual Fund Investors, 2016.”

Delve deeper into ICI’s findings at http://tinyurl.com/ICIMutualFundSurvey.

Securities offered through LPL Financial.  Member FINRA/SIPC.  Investment advisory services offered through LMC Financial Services a registered investment advisor.  LMC Financial Services and LPL Financial are separate non-affiliated entities.

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com

© 2017 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.

Investing in mutual funds and other investment products involves risk, including the possible loss of principal invested