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Majority of U.S. Households Investing in Mutual Funds

Portfolios: Trend follows an increase in the number of Americans who participate in defined contribution retirement plans.

October 04, 2001|JOSH FRIEDMAN | TIMES STAFF WRITER

For the first time, the majority of U.S. households now owns mutual funds, according to a survey released Wednesday.

Of course, with the average U.S. stock fund down 22% in this year's first three quarters--and many funds down more than 50%--there may be a few households with second thoughts.

The estimated number of U.S. households owning stock, bond or money market funds grew to 54.8 million, or 52% of total households, this year. That's up from 51.7 million households, or 49%, last year, said the Investment Company Institute, the fund industry's Washington-based trade group.

The number of individuals owning funds rose to 93.3 million from 89.7 million in 2000. As a result, one out of three people in the U.S. now owns mutual funds.

The ICI attributed the trend in large part to an increase in the number of Americans who invest through defined contribution retirement plans, such as 401(k)s, indicating that employers are a key investment channel for new fund owners.

One-third of U.S. households held mutual funds in employer-sponsored retirement plans as of May. These plans include 401(k), 403(b) and 457 plans, as well as SEP IRAs and SIMPLE IRAs.

A larger share of households, 38%, owned funds outside employer retirement plans, in accounts either purchased directly from fund companies or through professional financial advisors. These accounts include taxable accounts; traditional, rollover and Roth IRAs; and variable annuities.

The survey also found that fund ownership, as expected, tends to rise with income. As of May, 35% of households with incomes of less than $50,000 owned mutual funds, while 74% of those with incomes of more than $50,000 owned funds.

The study found that households headed by an individual 35 to 54 years old are likeliest to own funds. About one-third of households headed by an individual younger than 25 owned funds, while 41% of U.S. households headed by individuals 65 or older owned funds.

The rising number of fund owners comes as stock mutual funds face what could be one of their worst years. Almost every type of equity fund has lost ground year to date amid big losses for all three major U.S. stock indexes.

The 22% decline in diversified U.S. stock funds this year--which account for about three-quarters of equity fund assets--is steeper than the 20% loss in the Standard & Poor's 500 index or the 17% decline in the Dow Jones industrial average during the same period, according to fund tracker Lipper Inc.

If diversified funds were to finish the year at Sept. 30 levels, it would be the worst showing since 1974, when they lost 24.9%, Lipper said.

The report is based on a survey of 3,019 randomly selected households.

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Reuters was used in compiling this report.

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