Take a bow, mutual fund investors.

Unsophisticated though you may be in the eyes of Wall Street, you're giving a good account of yourselves as pension managers. High-priced professionals can't always make the same claim.

This cheery thought hit me as I was looking at statistics cited by researchers at the Federal Reserve Board in an article published in the December issue of the Federal Reserve Bulletin. (Who says a financial columnist leads a dull life?)

The piece notes that more than one-third of the $6.8 trillion in mutual funds is invested through tax-deferred retirement accounts, such as employer-sponsored 401(k) plans and individual retirement accounts.

Many of the same retirement savers also invest in funds through traditional taxable accounts. Here's the point I'm driving at: The data show that investors allocate their money very differently in their retirement accounts from the way they do in their taxable accounts.

As of 1999, according to the Investment Company Institute, investors in defined contribution pension plans for example, 401(k)s had 81 percent of this money in stock funds (domestic and international), 5 percent in bond funds, 8 percent in hybrid stock-and-bond funds, and 6 percent in money market funds.

In IRAs, the percentages were 73 percent stock funds, 8 percent bond funds, 8 percent hybrid funds and 11 percent money market funds.

In all other fund accounts, by contrast, just 49 percent of the total was in stock funds, with 15 percent in bond funds, 4 percent in hybrid funds and 32 percent in money market funds.

Good sense

These numbers attest to investors' basic good sense. Their taxable accounts, which presumably include money invested for both shorter-term and long-term purposes, are well diversified to suit those varied circumstances.

The past few months have reminded everybody that stock funds are a questionable place for money you might need within the next year or two. That's not enough time for the long-term upward bias of the stock market to override the short-term risks for which it is so famous.

Retirement accounts, for their part, should have a heavy weighting in stock funds, since most retirement savings are long-term money, set aside for use in the distant future.

The return that stocks will earn in the future is a deep, dark secret. In the past, though, stocks have produced superior returns on average over bonds and money markets, and the margin of superiority usually grew wider and wider as the holding period increased.

From 1802 to 1998, according to Jeremy Siegel of the University of Pennsylvania's Wharton School, $1 invested in stocks grew to $682,794, after adjusting for inflation; $1 in bonds to $932; and $1 in short-term government securities to $284. Siegel titled the book in which he published that research "Stocks For the Long Run."

Given this powerful information, why is even a dime of retirement money invested in short-term money funds? Well, at any moment a small percentage of assets in these accounts is not long-term money at all. It's slated to be taken out in the near future by people who have reached the point of drawing on their retirement savings.

Tax implications

Think for a minute about the tax implications of owning a stock fund in a 401(k) plan. When you come to withdraw from this account, every dollar you take out will normally be taxed as "ordinary income," at marginal rates that currently range up to 39.6 percent.

By contrast, gains on stock investments held for more than a year in a taxable account are subject to long-term capital gains rates of no more than 20 percent. That makes a point in favor of putting stocks and stock funds in taxable, rather than retirement accounts.

On the other side of the coin, any capital gains or dividends a fund distributes to its shareholders each year are taxable to the everyday investor whereas in 401(k)s or IRAs, there is no year-by-year tax liability, and all worrying about taxes can be put off until you withdraw money from the account. In the words of Scarlett O'Hara, tomorrow is another day.

Whatever their motivation, investors aren't robotically keeping stocks concentrated in their taxable accounts. Neither are they mechanically putting income-producing securities in tax-deferred accounts, just to keep from paying current taxes on the interest and dividends. As they've shown us already, they're much too sophisticated for that.

Chet Currier is a columnist for Bloomberg News.

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