Mutual Funds Struggling to Keep Investors

The mutual-fund industry had another record year in 2007, but there are some big storm clouds on the horizon.

Next year, the first baby boomers will turn 62, making them eligible to collect Social Security. Over the next 15 years, they will be followed by 76 million more. When this happens, many will switch from saving for retirement to drawing down their savings -- cashing out of mutual funds in the process.

Already, the fund industry is largely dependent on market appreciation for growth -- despite a rocky year, the S&P is up 5.6% to date.

There were $12.356 trillion in assets in mutual funds at the end of October, the most recent data available from the Investment Company Institute, a Washington, D.C. trade group. That was up almost 19% from the end of 2006. But most of the increase, which includes stock funds, hybrid funds, long-term bond funds and money market funds, has come from market appreciation.

Just $229.86 billion of the $1.94 trillion of growth represents new money.

Many of the industry's best-selling products, such as target funds, lifecycle funds, and funds in 401(k) plans, help investors plan for retirement. But they don't offer a systematic way to distribute money.

The traditional way the fund industry has catered to retirees is through annuities. These are insurance contracts that pay a guaranteed stream of income, typically by investing the premium in some kind of mutual fund. But annuities are a tough sell; they are complex and come with big fees.

< Previous

1 2 3

Next >