The Markets May 9, 2007

Retirement Assets Continue Growth in 2006

Retirement assets reached $16.4 trillion at the end of 2006, with lifecycle and lifestyle continuing their popularity, but lifecycle funds gathered a larger percentage of retirement plan assets.

Reported by

Adrien Martin

The increase in assets was propelled largely by an increase in individual retirement accounts (IRAs) and DC plans, which comprised 12% of the advance, according to the Investment Company Institute’s annual survey of the retirement market.

At the end of 2006, according to ICI’s 2007 Investment Company Fact Book $1.5 trillion of 401(k) plan assets were invested in mutual funds, with mutual funds’ share of the 401(k) market increasing from 9% in 1990 to an estimated 55% year-end 2006, ICI said.

Lifestyle and lifecycle funds, generally included in the hybrid fund category, have continued to grow in popularity, ICI said, with about $303 billion was invested in lifestyle and lifecycle funds at the end of 2006. Lifestyle funds were more popular, with $189 billion of assets while lifecycle funds held $114 billion. However, lifecycle funds were more popular in retirement plans: the bulk (90%) of lifecycle fund assets was held in retirement accounts, compared with about 47% of lifestyle fund assets, ICI said.

Asset Allocations
ICI found that the asset allocations of 401(k) participants varies with age, with younger participants tending to allocate a larger portion of their account balances to equity securities (which include equity mutual funds and other pooled equity investments and the company stock of the employer). Older participants are more likely to invest in fixed-income securities such as money funds, bond funds, and guaranteed investment contracts (GICs) and other stable value funds.

Individuals in their twenties invested 62% of their assets in equity securities, 20% in fixed-income securities and 16% in balanced funds, while those in their 60s invested 49% of their assets in equity securities, 39% in fixed-income securities, and 10% in balanced funds, ICI said.

IRAs

The Fact Book found that assets in IRAs rose 17% to $4.2 trillion in 2006, with nearly half of those assets invested in mutual funds and DC plan assets totaled $4.1 trillion.

The mutual fund industry’s share of the IRA market has increased from 22% in 1990 to 47% at year-end 2006, with mutual fund assets held in IRAs reaching $2 trillion.

Mutual funds were most widely held in IRAs. As of mid-2006, approximately 34.8 million U.S. households owned traditional IRAs, or those that meet guidelines of the Employee Retirement Income Security Act (ERISA), while about 14.4 million U.S. households owned Roth IRAs.

According to ICI, 61% of IRA assets were invested in stock funds, 30% in bond funds and 25% in hybrid funds.

For the full ICI mutual fund report visit http://www.icifactbook.org/.