Get ‘em young.
Industry attempts to get individuals and households to begin saving at your ages appear to be working, with almost half of the 37 million households headed by a member of the Millennial Generation or Generation Z owning mutual funds in 2020.
New research from the Investment Company Institute (ICI) finds that 47% of these households owned mutual funds, up from 41% in 2019.
The survey results also show that saving for retirement was a financial goal for 94% of mutual fund-owning households, and 75% indicated that retirement saving was the household’s primary financial goal.
“Investors across generations use mutual funds to help meet their household’s most important financial goals, especially saving for retirement,” Sarah Holden, ICI senior director of retirement and investor research, said in a statement. “The data this year show increasing ownership of mutual funds among younger households, with mutual fund ownership among Millennials and members of Gen Z up significantly. The data show the central and expanding role funds play in the financial lives of American households of all ages.”
Households across all generations held mutual funds
Nearly 59 million U.S. households representing more than 102 million individual investors owned mutual funds in 2020, according to the study. Among the 42 million households headed by a Baby Boomer, 44% owned mutual funds, and their mutual fund holdings accounted for 43% of households’ mutual fund assets in 2020. These data reflect the fact that Baby Boomers have had decades to accumulate savings, as the study notes.
In addition, 54% of the 34 million Generation X households owned mutual funds, accounting for 31% of households’ mutual fund assets. Among the 37 million Generation Z and Millennial households, 47% owned mutual funds, holding 16% of household mutual fund assets—reflecting the shorter time of these younger generations to save and invest.
Other key findings include:
- Shareholders’ willingness to take investment risk in 2020 increased over the level seen in 2019. Forty% of mutual fund–owning households were willing to take substantial or above-average risk for financial gain in 2020, higher than 35% in 2019. As in previous years, households that do not own mutual funds are less willing to take investment risk than mutual fund shareholders.
- Many mutual fund shareholders had moderate household incomes and were in their peak earning and saving years. Two-thirds of households owning mutual funds had incomes less than $150,000, and the median household income was $105,000. Sixty% of mutual fund–owning households were headed by individuals between the ages of 35 and 64 in 2020.
- More than three times as many households owned mutual funds through tax-deferred accounts—employer-sponsored retirement plans, individual retirement accounts, and variable annuities—as owned mutual funds outside such accounts.
- Employer-sponsored retirement plans often are the gateway to mutual fund ownership. Sixty-five% of mutual fund–owning households that purchased their first fund in 2010 or later purchased that fund through an employer-sponsored retirement plan, compared with 53% of those that made their first purchase before 1990. In 2020, 46% of mutual fund–owning households owned funds both inside and outside employer-sponsored retirement plans. An additional 37% owned mutual funds only inside employer-sponsored retirement plans.
- When ownership of all registered investment companies is considered in 2020, 47.4% of households owned shares of mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts, representing an estimated 60.9 million households and 106.3 million investors.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.