Retail Stock and Bond Mutual Fund Investors Segment Summary February 2014
Source: 2012–13 MacroMonitor
After a decade, the incidence of retail stock and bond mutual fund investors continues to decline. A contrast between the top 2% of households and the remaining 98% of households is stark. In 2012, almost one-half (47%) of the top 2% own any retail stock or bond mutual fund; only 13% of the other 98% of households do so. For the 98%, bond mutual funds have slowly declined from 10% in 1996 to 5% in 2012; stock mutual fund ownership fell by half from 20% in 1996 to 10% in 2012. Many factors—such as increased direct ownership of stocks and bonds, the 2001 recession, the 2008 financial crisis, the rise of ETFs, continuing stock market volatility, widening income and wealth inequity, negative attitudes about investing, and increasing risk aversion—contribute to the declines in mutual fund ownership. This summary compares the 98% of households that currently own retail stock and bond mutual funds, households that recently bought, and households that say they are likely to buy in the coming 12 months. Mutual fund providers can benefit by gaining insights about current and future retail bond mutual fund owners.
Retail stock and bond mutual fund investors, recent buyers, and households likely to buy have mature, upscale, well-educated, married household heads with few or no dependents. Retail mutual funds enjoyed a broader base of investors in 1998 than in 2012.
- The mean age of household heads (HHH) who own any retail stock or bond mutual fund is 56, 54 for HHHs who recently bought, and 50 for HHHs who are likely to buy in the next two years.
- Current owners are more likely to be retired (37%) than are likely buyers (22%).
- Mean household income is $94K for owners, $102K for households that bought recently, and $101K for households likely to buy.
- Over half of mutual fund investors have a four-year college degree or more; almost two-thirds of recent buyers have a four-year degree or higher.
- The majority of owners, buyers, and likely buyers are married households.
- Older Boomers and the Silent and the Greatest generations are most likely to own retail funds; Younger Boomers are most likely to say they are likely to buy.
- The net worth of households that own retail mutual funds averages $896K, $940K for recent buyers, and $666K for households likely to buy. Likely-to-buy households have higher liabilities than do the other two segments.
- All three segments are more likely than the market norm to be owners or part owners in a business or professional practice.
Retail stock and bond investors have diversified asset portfolios. Incidences for most financial products are significantly above average, but the mean amounts in accounts vary by segment. In general, households that are likely to buy have lower balances than do households that own any or that recently bought.
- Households that own any retail mutual funds are more likely than the other segments also to own money market deposit accounts, custodial accounts, and cash value of life insurance. Almost 7 in 10 have a stockbrokerage account; 9% are the beneficiary of a personal trust.
- Households that recently bought are more likely to own US savings bonds, money market mutual funds, education savings accounts, 529 plans, an individual annuity, publically traded and nontraded stock, IRAs or SEPs, and a business. However, the amount owed on consumer loans is higher than for the other two segments.
- Households that are likely to buy mutual funds are more likely to own a 401(k), 403(b), or 457 plan and ETFs and to have more in their IRAs/SEPs and 401(k), 403(b), or 527 plans than do the other two segments. Their incidence for consumer loans is the highest of the three segments. Roughly half have a stockbrokerage account; 10% are the beneficiary of a personal trust.
Financial Attitudes and Tidbits
Retail mutual fund investors are significantly more likely than average to be satisfied with their household's current financial situation. All three segments are more likely than all other households to have a financial strategy, to plan ahead, to be more knowledgeable about investing, and to enjoy taking care of financial matters. Financial attitudes between the segments are quite similar. Attitudes about the use of, and trust in, advisors are significantly above the norm; almost 7 in 10 prefer to consult with a specialist when making financial decisions.
- They prefer stockbrokerage firms over banks for investment needs.
- They are more likely to say their investments are so good that "I don't need life insurance."
- More than half say they use their financial advisor as a sounding board, and almost two-thirds expect their financial advisors to make recommendations.
- About two-thirds or more find the internet to be a helpful financial-information-gathering tool.
- Half would recommend their financial advisor to a friend or colleague, but only 1 in 5 would follow their advisor to a new institution.
Excluding the top 2% of households, only 16.7 million households (out of a total of 130.6 million households) own retail stock or bond mutual funds; 9.8 million bought a fund in the past two years (7.5% of all households), and 13.5 million (10% of all households) are likely to buy in the next two years. Among the top 2%, the propensity to buy a retail mutual fund has recovered, but not among the 98%. Because of the sluggish economy in the near term and income inequity in the long term, the return of retail mutual fund investors among the 98% may be slow.
Mutual funds by design enable and facilitate mass-market investing. By pooling resources, a mutual fund provides the small investor with the leverage of larger investors. Because a mutual fund includes a portfolio of funds, risk is minimal. A retail mutual fund doesn't require the investor to manage investments actively because funds are under professional management (for a small fee). Financial institutions provide a marketplace through which mutual fund investors are able to buy, add, transfer, and sell with a minimum of trouble and with fees that are lower than would be incurred by purchasing individual securities.
Mutual funds continue to lose favor with small investors at the same time that stock markets reach new highs. The basic structure of the product has not changed; potential small investors have. Likely buyers of retail stock or bond mutual funds need to amass an additional $100K or so in investable assets before many are ready to purchase. Before these households purchase more retail mutual funds or purchase mutual funds for the first time, they need to become more risk tolerant than they are at present, and providers need to work to regain or build trust.
New Deliverables for MacroMonitor Subscribers
If the households that are likely to invest in retail mutual funds are important to your business and you would like to learn more, contact us to request the edited data tables and charts on which this Segment Summary is based. An on-site presentation of these findings along with a Q&A session is available to MacroMonitor subscribers for a small additional fee.