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Younger Investors Turn Up the Risk Dial


Risk tolerance in the younger U.S. mutual fund investor set has returned to the level seen before the financial crisis of 2008, according to research from the Investment Company Institute.

Specifically, the ICI found that in May 2012, the fraction of mutual fund–owning households younger than 35 willing to take above-average or substantial financial risk to get higher investment returns was 39%—up from a low of 31% in May 2010 and May 2011 and slightly higher than its 37% level in May 2008. At the same time, risk tolerance among households in the oldest age group—aged 65 or older—stood at 13 in May 2012, compared with 14 in May 2008.

“Willingness to take financial risk is strongly affected by age, but has also varied over time within age groups,” stated Sarah Holden, ICI Senior Director of Retirement and Investor Research. “Between 2011 and 2012, the willingness to take investment risk among all but the youngest shareholder group fell or remained about the same, while the youngest age group’s risk tolerance increased.”

ICI’s annual survey also reported that in 2012, an estimated 53.8 million, or 44.4% of U.S. households, representing more than 90 million individual investors owned mutual funds. Another 3.4 million households reported owning exchange-traded funds and 1.9 million households reported owning closed-end funds in 2012.

Other survey findings for 2012 include:

• More than twice as many U.S. households (49.3 million) owned mutual funds through employer-sponsored retirement plans, IRAs, and variable annuities, as owned mutual funds outside tax-deferred accounts (17.9 million).

• More than half of all households owning mutual funds had incomes between $25,000 and $99,999, and about two-thirds were headed by individuals between the ages of 35 and 64.

• About two-thirds of mutual fund shareholders indicated that fund performance was a “very” important factor influencing their views of the industry, and 40% cited fund performance as the most important factor.

• Mutual funds’ favorability among shareholders edged down from 69% in 2011 to 65% in 2012 as the stock market moved down over April and May 2012 to be relatively flat compared with a year earlier. In 2012, older mutual fund investors’ favorability ratings were higher than those reported by younger investors and more recent investors.

• More than nine in 10 households owning mutual funds had Internet access. Among that group, more than eight in 10 used the Internet for financial purposes.

ICI’s 2012 Annual Mutual Fund Shareholder Tracking Survey results are based on a sample of 4,019 U.S. households.


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