Originally published Sunday, December 23, 2007 at 12:00 AM
Market Trends | Mutual-fund growth losing steam
An explosion in 401(k) plan adoption lifted ownership of mutual funds, typically used in such plans, from 6 percent of U.S. households in 1980 to...
An explosion in 401(k) plan adoption lifted ownership of mutual funds, typically used in such plans, from 6 percent of U.S. households in 1980 to 48 percent in 2001. Now, with fewer 401(k) plans being established, fund ownership has leveled off.
"We have kind of maxed out — temporarily — the households that could potentially invest" in funds, says Brian Reid, chief economist of the Investment Company Institute (ICI), the fund industry's trade group. Fund ownership is smallest among lower-income groups. ICI's survey shows households with income between $25,000 and $35,000 represent 12 percent of the population but account for 6 percent of fund ownership.
As many as half of families lack savings necessary to invest, he says. A 2006 law may bring more low-income investors into mutual funds. It permits employers to automatically enroll employees in 401(k) plans and invest their contributions in mutual funds.
Only a small percentage of employers have done so, but as they do, fund-ownership rates should rise, Reid says. Competition from exchange-traded funds, which can be bought and sold like stocks, isn't yet a factor. Despite their rapid growth, ETFs are owned by just 1 or 2 percent of households, Reid says.
Copyright © 2007 The Seattle Times Company
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