The popularity of mutual funds and the part they play in retirement savings has long been embraced all over the world except probably in Nigeria. One particular country where mutual funds have become a household name is the United States of America. According to the January 2019 edition of “focus on Funds”, a publication by the Investment Company Institute (ICI), 44% of US households or about 56 million American households own mutual fund investments.
In an interview with Sarah Holden, senior director of retirement and investor research at the Investment company Institute, she stated that most of those who own mutual funds investments are the Generation X and Baby Boomers, as they represent those that have been on their job for a while, who have saved or are saving for their retirement and were introduced to investing early in life.
A little more than a third of mutual fund investors in the US are Gen X while a little less than another one third are baby boomers. Because most of those baby boomers and Gen X investors have been saving for quite some time, they own a lion share of the total mutual funds’ investments. For those baby boomers and Gen X investors, mutual funds are their nest egg-borne out of a lifetime of savings. Generation X are those born between the early 1960s and late 1970s, while the baby boomers are those born after the second world war, from early to mid-1940s to early 1960s.
On the other hand, she noted that among younger households, the millennial households, fewer of them are engaged in mutual fund ownership compared with the baby boomer generation and Generation X. However, she pointed out that 4 in 10 of the millennials already have mutual funds’ investments. Some of the reasons why the millennial generation is not into mutual fund investing as much as the Gen X and Baby boomers, according to Sarah Holden include the fact that they are at the early stage of their life cycle, they are young, just starting their careers and/or just starting their families. In addition, many of them are just being introduced to investing.
According to the Investments Company Institute’s Research Perspective on Characteristics of Mutual Funds Investors, which formed the basis of the interview with Sarah Holden, most US mutual fund investors invest in mutual funds through a variety of channels, which then impacts the types of funds they invest in. While 80% of them own mutual fund investments through workplace retirement plans, like 401K – a form of defined contribution plan like the Retirement Savings Accounts in Nigeria.
63% of those that own mutual fund investments purchased funds outside of and/or in addition to those workplace retirement plans. Other discernable and important characteristics of US mutual fund investors, according to the publication, are that 62% of those households that own mutual fund investments are headed by individuals aged between 35 and 64 while 75% of those heading such households were either employed full time or part-time. In addition, the report found out that 82% of those owning mutual fund investments have investments in more than one fund while 88% of them own equity funds.
Interestingly and most importantly, the survey discovered that almost all mutual fund investors were focused on retirement savings as 93% of mutual fund-owning households indicated that retirement was their primary goal for owning mutual funds.
Morals of this Survey for Nigerians
I remember in those good old days, after reading or being told a story, usually folklores, the last piece is usually the morals of the story, as in, what can we learn from this story. When an American digresses with a story, he gets back to his point by saying, “I said that to say this”, then you know he is getting ready to tell you the “moral” of the story that caused the digression. So, the result of the survey as published by the Investment Company Institute (ICI) presents Nigerian investors with some morals:
Start to save early and save for a lifetime
As indicated by the publication, the Gen X and Baby boomers have saved for a long time and as such have accumulated so much as to constitute the majority of mutual funds value in America.
Introduce people to investing
The report indicated that the Gen X and Baby boomers were introduced to investing and they embraced it. The millennials are also being introduced to investing. The Nigerian government, as well as the brokerage firms and fund managers, should introduce the populace to the virtues of investing and the need to save for retirement by constantly engaging in various financial literacy programs. One major thing that has led to the popularity of mutual funds investing as a means of saving for retirement in the US is the tax benefits that come with it.
With a 401K contribution, for example, you are not required to pay PAYE taxes on such contributions as long as they are within the confines of the regulation. By the time you retire and start making withdrawals from the retirement account, you are taxed, in most cases, at a lower tax bracket. By so doing, the government is helping you to save.
Take advantage of the voluntary contribution of retirement accounts
Though the report says that most of those mutual fund investors invested via workplace retirement accounts, many others invested outside of those workplace retirement plans. In the same way, Nigerians have the opportunity for voluntary retirement contributions, as much as possible, take advantage of such opportunities and save.
Be Retirement Conscious
The survey report has it that 93% of mutual fund owners indicated that their purpose was to save for retirement. Nigerians should borrow a leaf from this indication. Gone are the days when parents depended on their children to take care of them when they retired. With the current level of un- and under-employment, and the effect of modernisation on children these days, the goal of being taken care of at old age by children seems very fleeting and unrealisable.
Increase the popularity of mutual funds
Mutual funds have been in existence in Nigeria since 1991 but its popularity is nothing to write home about. There is a lack of transparency and diversification among Nigerian mutual funds. It is easier to find out the daily prices of mutual funds in Ghana than in Nigeria.
Prices are so stale and there are no factsheets and means of measuring performance among many funds. Mutual funds from financial giants like Zenith bank and UBA are the worst when it comes to transparency. They hardly publish their daily NAV as required by the regulations.
Even the Security and Exchange Commission, SEC, lacks the will to publish the weekly NAV Summary Report on a timely basis. The last of such publication was for November 2nd, 2018. All these lack of information have contributed to the lack of interest by investors in mutual funds in Nigeria. It is high time the fund managers began to motivate investors with timely and accurate data and information on mutual funds as they know, investment decisions are data and information-driven decisions.