Fund Investors Optimistic

Mutual fund investors have fairly glowing expectations for stock market returns over the next 10 years, and they don’t expect many bumps in the road--at least if you believe a new survey.

Liberty Financial, a Boston-based mutual fund manager, commissioned Louis Harris & Associates to poll fund investors on a number of questions. The survey of 1,014 individuals showed:

* Only 5% think the stock market will drop more than 30% in any one year between now and 2006. Only 18% think the market will drop between 20% and 30% in any year in that period.

The majority expect much smaller declines. Forty-one percent think the maximum annual decline in the stock market over the next 10 years will be less than 10%. Thirty-seven percent see the maximum decline at between 10% and 20%.

That optimism flies in the face of market history: In the severe bear market of 1973-74, blue-chip stock indexes sank 17% in 1973 and 30% in 1974.

* A stunning 85% of investors surveyed believe that stocks over the next 10 years will match or beat the 14% annualized return of the last 10 years. Only 14% think the market will produce annual returns below those of the last 10 years.

Yet the stock market’s average annual return over the very long term is about 10%.

“I think everyone should be a bit concerned about the relatively high level of optimism among investors,” said Porter P. Morgan, investment strategist for Liberty.

* The majority of fund investors, 62%, say they would hold their shares if their fund fell 20% in value, and 22% said they would buy more. Only 15% said they would sell at that point.

At the same time, 31% of stock fund owners said they would consider selling their shares if the stock market overall fell 25%.

* Fifty-two percent of fund investors expect to use the Internet or online services for investment purposes in the future, although only 6% use such services today.

The telephone survey covered stock fund investors who own mutual funds other than through an employer-sponsored plan, such as 401(k) retirement plans.

Liberty Financial owns such fund companies as Stein Roe, Colonial Group and Newport Pacific.