Would it surprise you to learn that a majority of American households own mutual funds? It’s true, according to the Investment Company Institute’s 2023 Fact Book. An estimated 68.6 million U.S. households, 52% of all households, were mutual fund investors in 2022. If we add exchange-traded funds, closed-end funds, and unit investment trusts to the mix, the figures go to 71.7 million households, 55% of all households.
Two factors generally are credited with the widespread utilization of mutual funds. The most important is the advent of employment-based retirement savings accounts, such as 401(k) plans, which really took off in the 1980s. Account owners are responsible for making investment decisions for their savings, and their choices typically include a variety mutual funds. The second factor is the use of IRA rollovers to preserve the tax benefits of these accounts when retirement finally arrives. An estimated $11.5 trillion was held in IRAs in 2022, much larger than the $6.6 trillion accumulated in 401(k) plans. Those who have grown comfortable with mutual fund investing during their working years may continue with those habits in retirement.
The median mutual fund-owning household:
- had $100,000 in income;
- owned three different mutual funds, including at least one equity fund;
- had $250,000 in household financial assets, of which half was invested in mutual funds.
For 65% of mutual fund owners, their first fund purchase was through an employer-sponsored retirement plan. Some 64% of owners are still working, 54% are college graduates, and 54% are aged 35 to 64. About 90% say they are saving for retirement (among other objectives), and 82% report that they are confident that mutual funds will help to meet their savings and investment goals.
How do mutual fund owners decide which funds to invest in? Here are the top five factors considered “very important”:
- Fees and expenses (50%)
- Historical performance (45%)
- Risks associated with investing in the fund (41%)
- Performance compared to an index (38%)
- Fund’s stated objectives (36%)
Mutual funds have advantages that make them a natural fit for investors who are just beginning their capital accumulation phase. They have low minimums, are easy to understand and easy to buy and sell. A mutual fund creates instant diversification, and so lowers investment risk right out of the gate. Those with more to invest may still find that mutual funds meet their needs, because such funds provide professional investment supervision for a wide variety of investment strategies, asset categories, and sectors. Fully one-third of mutual fund investors in 2022 had incomes of $150,000 or more.
The complete Investment Company Fact Book 2023 may be accessed online at https://icifactbook.org. For the chapter on characteristics of mutual fund investors, see https://icifactbook.org/pdf/2023-factbook-ch7.pdf.
Professional portfolio design and supervision is one of our core competencies at Garden State Trust Company. Whether you are investing for income, capital preservation, or capital appreciation, whether you prefer investing in funds or in securities directly, we can craft an investment policy that will balance your objectives with your appetite for risk. Call on us soon to learn more.