The Extinction of Mutual Funds in Retirement Portfolios
Experts in institutional and retirement investment industries are predicting a strong decline in the total number of mutual funds and mutual fund families in response to the poor investment performance experienced so far during the 21st century.
Why is the once domineering mutual fund industry facing extinction? Mutual funds were once the big investment option for most 401(k) and IRA retirement savings accounts, offering safe and sometimes big returns over years of investment. However, they now have disappointed hundreds of thousands of soon-to-be-retired individuals who have experienced little, flat, or even negative returns since the 21st century began.
The Changing Mutual Fund Tide
Mutual funds are pooled investments registered with the SEC, and they invest largely in a diversity of stocks, bonds, and money market instruments. For over 70 years, they have become a popular and “safe” way to invest in the stock market without suffering the full risk of stock declines. Some mutual funds offer high growth over the long-term with aggressive investing, while others are more conservative and offer stable yet modest investment returns. This has made them very popular for retirement investing since the funds can be invested over 30, even 40 years or more, giving investors an ability to ride out potential market downfalls.
But over the last nine years, it has become clear to individual investors, market analysts, and even the federal government that the stock market’s volatility may require more regulation among mutual funds. They are also calling for more safeguard protection for “hands-off” investors, such as 401(k) retirement funds that often have little or no portfolio fund options. Even some of the “safest” mutual funds geared for asset and wealth protection for those nearing retirement within the next two to five years saw an average of 25% decline in total fund balance since 2007.
With high losses mounting, mutual fund managers are feeling the pressures of investor withdrawals and government attention, and changes to these funds are certainly on the horizon. Therefore, what are some options and changes that may happen to help win back investors and trust in the mutual fund market?
· More Federal Regulation – Mutual funds may see more government regulation as a response to overwhelming investor losses. Since mutual funds are not a typical haven for already wealthy investors, but rather a vehicle for the average citizen to grow a stable and dependable retirement fund, the U.S. Senate Committee for Aging is considering stricter rules and oversight on target-date mutual funds.
· Automatic Portfolio Funds – Many retirement programs may start offering an “auto-pilot” portfolio index. These indexes will automatically re-adjust and re-direct retirement diversification according to the investor’s age, contribution amounts, and job change status. This is due to a history of poor diversification decisions and bad portfolio management by individual 401(k) investors at their own discretion.
· More Self-Direction – More and more investors want to self-direct the fund and investment options of their 401(k) and IRA accounts. Expect to see more individuals start rolling over into self-directed IRAs, and large IRA houses such as Schwab, E-Trade, and TD Ameritrade, offering more educational and communication programs to help investors make good and sound decisions.
Mutual funds have historically been stable and dependable options for retirement accounts. However, lately it has seen too much volatility to remain the premier option for retirement portfolios. If you have or want to start a retirement account, talk to a qualified retirement wealth specialist at www.kenhimmler.com or a retirement asset management company like www.iamllc.bizto get the advice you need to manage your retirement funds.
Authored by Kenneth Himmler, Sr.
Tags: mutual fund, retirement, retirement funds
