Retire Rich

January 4, 2010

2010 Will Be The Year Fund Investors Get Real

Since the recession hit two years ago, 80% of mutual fund firms have laid off tens of thousands of people, as total assets under management dropped from $11.999 trillion at the end of 2007 to $10.688 trillion as of October. In line with this 11% decline in assets, fees have undoubtedly plummeted by at least $1 billion a year.

While the S&P 500 delivered a remarkable 24.9% return last year, the fact of the matter remains, the stock market is still down 30% from its peak in October 2007. This is why investors in 2009 remained stock-spooked, yanking $36 billion from U.S. equity funds and socking $357 billion into bond funds.

As dismal as this picture is, it could have been far, far worse. Chalk it up to the inertia of 401(k) investors-whose balances were not totally decimated by the sheer fact that their steady, blind contributions kept them from drowning in a sea of red-and the market's miraculous rebound.

Investors are likely to remain cautious, discerning and demanding in 2010. They, their advisers and 401(k) sponsors will increasingly seek out funds with lower fees and consistent returns from high-quality, trustworthy companies. Safe, boring and sure will continue to be the mantra of the New Year. Annuities, absolute-return, international equity and exchange-traded funds will gain market share. And the old diversification standby will return, although assets will be far more broadly allocated than ever before.

More investors, perhaps with the help of enterprising 401(k) advice start-ups, will begin to seek out actual returns data-not numbers boosted by ongoing payroll contributions.

Less will mean more. More than 2,000 funds were liquidated or merged in 2009, one of the biggest years for consolidation on record, and the weaning out of the weak over a preference for stronger performers will carry on.

All of this will help to restore investor confidence, but the most important development in 2010 will be economic repair. With corporate revenues projected to move back into the black and inventory cycles and stimulus money finally taking hold, retail investors will return to stock funds, restoring year-over-year growth to the mutual fund industry.

2010 will be a year of getting real.

As Wharton Professor Jeremy Siegel put it, "Earnings growth [in 2010] will be stronger than anticipated and break the all-time high for the S&P. With $90 in earnings and a 15 P/E ratio, you get 1,350 for the S&P. That is conservative."

(c) 2010 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

http://www.mmexecutive.com http://www.sourcemedia.com/

Recent Posts

Tear a Page From the AARP/Today Show Playbook

America has yet to witness the tremendous societal transformation retiring Boomers will have, as the oldest is a mere 64 and the youngest, 46. But we are beginning to see signs of the tsunami-sized impact this army of 77 million will have on the workplace, the economy, healthcare and even the arts and entertainment. AARP has just formed a timely, unbelievably beneficial partnership with NBC's "Today Show." Beginning tomorrow, March 9, the No. 1 morning news program that reaches 5.9 million viewers a day, is bringing back former Emmy Award-winning host Jane Pauley to produce and report a monthly segment called, "Your Life Calling."

It's About Time for an About-Face for Funds

It's about time mutual fund product developers thought out of the Morningstar investment-style box to give portfolio managers the ability to do an about-face.

One of the most critical discussions to come out of the financial crisis has been the questioning of the rigid investment mandates of mutual funds and the soundness of 60-year-old modern portfolio theory-since correlations between investment classes are obviously becoming more intricately woven in the global economy of the 21st century and the markets are prone to increasingly higher volatility and risk.

Extreme Makeover: 401(k) Edition

Investors are about to test drive 401(k) plans with a 21st Century whole new look and feel. The Department of Labor is promising streamlined rules for 401(k) advice that plan sponsors may actually use. The government is looking into the possibility of offering annuities or other lifetime income options in defined contribution plans.

C- Grade is Nothing To Crow About for 401(k)s

The mutual fund industry should proudly celebrate Americans' 73% approval rating for 401(k)s, according to an Investment Company Institute report, "Enduring Confidence in the 401(k) System." In our book, a 73% rating equals a C- grade that, in fact, should be a wake-up call for the industry to do a far better job of equipping Americans to adequately prepare for a decent and healthy life in their old age.

Index of Posts

0 Comments

Be the first to comment on this post using the section below.

Add Your Comments...

Already Registered?

If you have already registered to Money Management Executive, please use the form below to login. When completed you will immeditely be directed to post a comment.

Not Registered?

You must be registered to post a comment. Click here to register.