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Half of US Households own Mutual Fund Shares

Since we've all heard the President's State of the Union Address, here's a State of the Mutual Fund Industry Report.

Every year the Investment Company Institute (ICI), the trade association for the mutual fund industry, issues a report about the fund industry and its shareholders. While last year was a delicate one, the numbers show that half of all U.S. households, and one out of every three Americans, owns shares in mutual funds. As for fund assets, they were off eight percent from the previous year with stock and money market funds experiencing outflows and bond funds, inflows.

Here are more details:

- At year-end 2002, mutual funds recorded an annual inflow of $75.4 billion compared with $505 billion in 2001.

- In 2001, stock funds had net inflows of about 32 billion dollars, last year, 2002, they had outflows of $27.1 billion.The last time equity funds had money pouring out of them was in 1988 when eight percent of assets flowed out.

- Money market funds lost money, too. Last year, money market funds had net outflows of over 46 billion dollars. In 2001, they had inflows of $376 billion.

- The big winners in the where's-the-fund-money-going contest in 2002 were taxable and municipal bond mutual funds. It was a record year for them as inflows totaled more than $140 billion. The last time record amounts of money flowed into these kinds of long-term fixed-income funds was in 1986, were inflows totaled $103 billion.

- As for what's on the mind of the average mutual fund investor, the ICI reports that fund shareholders consider their holdings as long-term ones and 72 percent saying that saving for retirement was their primary financial goal. Over 80 percent say that they aren't overly concerned with short-term market fluctuations.

If you're still leery of the stock market, are concerned about the prospects of war or losing your job, why not start saving more. After all, cash always has been---and always will be--- king.

Even President Bush is hot on American's saving more. And, whether or not his proposed new savings plans become law, building a savings nest-egg is fundamental for anyone who wants to secure their financial future. One way to start a savings program, is by opening a money market mutual fund.

Even though rates on money market mutual funds are dismally low right now, these kinds of funds typically offer both new and seasoned investors returns on their money that is higher than those on traditional savings accounts. And penalty-free access to their money that other short-term parking places, like certificates of deposits, don't.

If you're new to money market mutual fund investing, iMoneyNet.com is a great resource. Along with showing the names and toll-free numbers of various money market funds, it also shows things like the fund's 7-day yield, 7-day compounded yield, and minimum investment requirements.

To get you started , here are the names of some of the top yielding money market funds on iMoneyNet.com as of January 28, 2003, along with their minimum investment requirements:

-Touchstone Money Market Fund (800-543-8721), minimum investment, $1000.

-Vanguard Prime MMF (800-662-7447), minimum investment, $3000.

-TIAA-CREF Money Market Fund (800-531-8448), minimum investment $1500.

-Centennial Money Market Trust (800-525-7048) minimum investment requirement $500.

For those wondering how much to save, the old rule of thumb was to have enough money put away to cover six months, worth of living expenses. Based upon what I've seen over the past few years, I,d increase that amount to cover one-year's worth of living expenses. I know that might be hard to swallow, but six months can fly by when you're unemployed so having a year's worth of living expenses in account you can tap immediately is a goal worth pursuing.


Dian Vujovich is a nationally syndicated mutual fund columnist, author of a number of books including Straight Talk About Mutual Funds (McGraw-Hill), and publisher of this web site.

To read more articles, please visit the column archive.

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