Funds Holding More Retirement Assets

Growth of mutual fund assets held in retirement accounts outstripped the growth of all U.S. retirement assets by 10 percentage points, according to Investment Company Institute (ICI) research. As a result, the share of fund assets in the total U.S. retirement market rose to 22% in 2003 up from 20% in 2002, with the 2003 share matching the all-time high reached in 1999, the last strong year for the stock market before the 2003 rally.

U.S. retirement assets, which include IRAs, annuities, and employer-sponsored pension plans, totaled $12.1 trillion at year-end 2003, up from $10.2 trillion in 2002. Those assets invested in mutual funds were about equally split between IRAs and defined contribution plan accounts.

The share of all mutual fund industry assets held in retirement accounts rose to 36% in 2003 from 33% in 2002. Retirement investors continued to favor long-term funds (equity, hybrid, and bond funds) over money market funds and the share of long-term funds held in retirement accounts rose to 45% in 2003, up from 43% in 2002. “Investors have shown once again their long-term commitment to mutual funds as a great way to save for retirement,” said ICI President Paul Schott Stevens, in the news release..

The net inflow to retirement accounts held in long-term funds increased in 2003 to $110 billion from $81 billion in 2002. The bulk of this flow was to equity offerings, drawing four times the inflow from retirement accounts in 2003 than in 2002. Inflow to hybrid funds, which invest in a mix of stock and fixed-income securities, doubled in 2003 over 2002.

Reflecting the low interest rate environment, money market funds experienced a net outflow of $25 billion from retirement accounts in 2003.

These results are based on an annual ICI survey, with 14,059 mutual fund share classes responding, representing 83% of mutual fund assets. More information is at  http://www.ici.org/pdf/fm-v13n2.pdf .