DC Plans a Gateway for Mutual Fund Investing for Millennials

Millennials are increasingly saving for retirement through mutual funds, underscoring the role that workplace retirement plans can play as gateways to mutual fund investing, a study by the Investment Company Institute (ICI) suggests.

The survey found that mutual fund–owning households headed by Millennials made their first mutual fund purchases at an earlier age than Baby Boomer households. Furthermore, the firm found that among mutual fund–owning households, more households headed by Millennials (45%) than Baby Boomer households (34%) held their funds only through employer-sponsored defined contribution (DC) retirement plans.

Among mutual fund–owning households that purchased their first mutual fund in 2010 or later, 71% purchased the fund through a workplace retirement plan, compared with 56% of those that made their first purchase before 1990.

“Our 2016 household survey shows that savers across all generations continue to rely on mutual funds to meet their financial goals,” says Sarah Holden, ICI senior director of retirement and investor research. “Among the millions of households headed by Millennials, for example, more than one-third owned mutual funds and they have been buying mutual funds at a younger age than preceding generations. Millennials typically are engaged in mutual fund investing through their employers’ retirement plans, a popular entry point for mutual fund ownership.”

The ICI survey also revealed that each successive generation began mutual fund investing at an earlier age. The median age at which households headed by adult Millennials (born between 1981 and 1998) first purchased mutual funds was 23. The median age for first time mutual fund owners for households headed by a member of Generation X (born between 1965 and 1980) was 27, while Baby Boomers (born between 1946 and 1964) were in their thirties when they made their first mutual fund purchase.

NEXT: Baby Boomers Largest Group of Mutual Fund Owners

According to the survey, Baby Boomers account for the largest group of mutual fund owners. Nearly half of the more than 43 million U.S. households headed by a Baby Boomer owned mutual funds, and their mutual fund holdings accounted for half of total U.S. households’ mutual fund assets in mid-2016.  

More than 44% of U.S. households owned shares of U.S.-registered investment companies—including mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts—representing an estimated 56 million households and about 96 million investors. Mutual funds were the most common type of investment owned, with about 55 million U.S. households, or nearly 44%, owning mutual funds in mid-2016.

The ICI also reported that three times as many U.S. households owned mutual funds through tax-deferred accounts as owned mutual funds outside such accounts. Almost all mutual fund–owning households (92%) were focused on retirement saving as one of their financial goals.

The majority of U.S. mutual fund shareholders had moderate or lower household incomes and were in their peak earning and saving years, the survey found. Fifty-one percent of U.S. households owning mutual funds had incomes less than $100,000, and individuals between the ages of 35 and 64 headed 63% of mutual fund–owning households.

The survey also revealed a few key insights about mutual fund owners’ demographics including their high rate of Internet access at 92%, and the variation in their willingness to take financial risk over time and across age groups. 

These findings are from a survey published through two different studies “Ownership of Mutual Funds, Shareholder Sentiment, and Use ofthe Internet, 2016” and “Characteristics of Mutual Fund Investors, 2016.