Generation X mutual fund shareholders, those aged 18 to 33, are diligently saving money at a faster rate than older investors, according to data recently collected by the Investment Company Institute. They are also more likely to participate in defined contribution plans, are better educated, and are more computer literate, according to the data.
While these younger investors may not be as numerous or as wealthy as older investors, they nonetheless hold great promise for mutual fund companies, said industry executives familiar with the ICI data.
ICI's 1998 Profile of Mutual Fund Shareholders indicates that 22 percent of all mutual fund shareholders are Generation X'ers, 51 percent are Baby Boomers aged 34 to 52 and 27 percent are of the so-called Silent Generation, aged 53 or older. ICI drew its conclusions from interviews with nearly 1,500 people in September and October of 1998. ICI released the profile this month. (MFMN 10/4/99)
The average total of mutual fund assets held by households led by Generation X investors is $22,700, the ICI data showed. For Baby Boomers, it is $63,800 and for the Silent Generation, it is $147,600.
The amount that Generation X investors has saved given their relatively short working lives indicates that they are diligently saving at a faster rate than older generations, said Dennis Dolego, director of research for Optima Group of Fairfield, Conn., a mutual fund distribution consulting company.
For example, if the oldest member of Generation X was 33 at the time of ICI's research and had started working at age 22, that person would have been in the workforce for 11 years and his household would have on average accumulated $22,700 worth of mutual fund investments during that time, Dolego said. If the oldest member of the Baby Boomers group was 52 at the time of the ICI study and had also entered the workforce at age 22, that person would have been in the workforce for 30 years and his household would have accumulated only $63,800 worth of mutual fund investments, Dolego said. Given the compound growth rate that the older investor should have enjoyed during that time, $63,800 in mutual fund assets is relatively small, Dolego said.
"ICI data shows that Generation X'ers are receptive to long-term financial planning and are positioning themselves for the future," said Jan Holman, vice president of investment services at American Express Financial Advisors of Minneapolis, Minn. "Unlike older workers who only became familiar with 401(k)'s and IRA's as they became popular in the 1980s, [Gen X'ers] have grown up understanding that they are going to be responsible for their financial futures."
"A lot of market research has identified Generation X as the emerging affluent," said Darlene DeRemer, principal of DeRemer + Associates of Wrentham, Mass., an asset management research and consulting company. "While they don't have a lot of existing discretionary assets, they will. A number of fund companies - Janus, Fidelity, E*Trade, Schwab, Scudder, Merrill.com - are doing an excellent job of targeting the younger investor and guiding them to their web sites."
"In fact, traditional direct-response mutual fund companies may be very far ahead" in terms of targeting the Generation X investor, DeRemer said.
Fidelity Investment Management of Boston is intent on marketing to Generation X and even Generation Y - those born after 1979, said Joan Bloom, senior vice president of marketing at Fidelity.
"The most telling statistic about them is their propensity to save for retirement," said Bloom. "We have been developing new products to meet that market need, including putting more information up on the web, such as a portfolio investment review tool. Gen X'ers are more self-directed, more independent and want to have more control."