ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Thursday, January 16, 1997 TAG: 9701160014
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
TYPE: ANALYSIS
SOURCE: NEW YORK
JOHN CUNNIFF ASSOCIATED PRESS
OF THE 51 MILLION Americans who own stocks, many don't regularly follow the market or pay attention to prices.
You might have thought with all the news about the stock market's ups and downs in 1996 that Americans were deeply involved, very active and highly knowledgeable about equity investments.
You can call on statistics to document your belief. That, for example, there are far more than 51 million stockowners and one in three adults owns corporate stocks.
You could count the headlines about the market's daily performance, you could read it in the countenance and tone of broadcast announcers, and you could sense it from the comments of people in the office and plant.
But when all the excitement quiets, you still have a nation of people who often have no idea of what the market is doing, aren't even sure of what to look for and don't even check prices more than monthly.
One survey, by Louis Harris and Associates for Liberty Financial, discovered that one-fourth of investors follow the market only when major events occur, and 7percent never follow the market (or their money).
Most of today's individual investors are not direct owners of corporate stocks, but instead invest through equity mutual funds, which last year reported a record inflow of about $220 billion, up $100 billion in one year.
In opting for mutual funds, today's investors say they are happy to turn their money over to others to invest rather than to invest themselves, although the talent of those ``others'' may be mediocre or worse.
It's a long-term trend. In 1950, more than 90 percent of U.S. equities were directly owned by the household sector (which includes nonprofit organizations). Fed figures from the early 1990s showed a percentage of 51.2.
Ownership of equities today is more and more through pension funds and mutual funds, rather than by direct investment in corporations. In 1950, pension funds held $1.1billion of equities, and mutual funds controlled $2.9 billion. Today, each controls well over $1trillion.
Year after year (1992 excepted), net purchases directly by households falls, while that of mutual funds rises. Each year since 1992, direct ownership has been reduced by increasingly larger amounts.
And yet the myth persists of the assertive, knowledgeable, risk-taking American investor.
There are sound reasons for people to rely on mutual funds. Some are well-managed and bring superior returns. And funds offer diversification, which spreads the risk among a variety of stocks.
And there are unsound reasons.
The Liberty survey reports that ``all investors say the one thing that captures their attention in a mutual fund advertisement is fund performance.'' But billions of dollars are invested in average and poorly performing funds.
And, in spite of their reputation, mutual funds can be a source of volatility. Big money can create big price changes, and big money joined by other big money, the herd instinct, can produce turbulence.
In the final summary, however, mutual funds might be seen as a sanctuary for those investors who pay more attention to the price changes at the grocery store than to the fate of their pension money.
LENGTH: Medium: 65 linesby CNB