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 21^st 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 21^st 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.

Your 401(k) is one of the most important investments you will make between now and your pending retirement.  Whether retirement is 10 years or 40 years down the road, there are many benefits to investing in a 401(k), mainly to have enough invested to live comfortably during your retirement years.  However, there are cons, as well as pros, to investing in a company sponsored 401(k). 

PRO - Tax Deferral Advantage

By investing in a 401(k), you determine how much comes out of your paycheck each pay period.  The money that goes into your 401(k) comes out before income taxes are assessed on your earnings.  That means you pay less tax now!  The more you can afford to put toward a 401(k) results in more tax savings for you.

CON - Tax Deferral Disadvantage

Though your 401(k) earnings are invested at tax deferral status, you will eventually pay tax on all your contributions and capital gains when you start withdrawing your 401(k) at the age of 59-1/2 years or older.  However, by playing the tax deferral game, you are betting that the tax rate when you reach retirement age will be less than your current tax bracket.  Usually tax brackets are lower at retirement age since most people earn less annually with their retirement savings.  However, even 10 or 40 years from now, no one knows what the tax rates will actually be.

PRO - Control of Investment Options

Your company sponsored 401(k) allows you to take a proactive stance with your retirement account.  You are provided with the investment options you want to take with your 401(k) funds, which usually include a choice of high and low growth mutual funds, bonds, and typically a choice of investing in your company’s stock portfolio.  If you are proactive, you will keep tabs on the mutual fund and other retirement options and their annual and quarterly returns, and you will make adjustments when necessary in order to keep your 401(k) diversified. 

CON - Limited Investment Options

Though you are allowed control of directing the options of investing in your 401(k), the choices are usually limited to maybe a dozen or two options.  These options are chosen by your company or the investment company hired by your employer to manage the 401(k) funds.  If you wish to put your retirement funds in securities other than mutual funds or your own company’s stock, you will need to eventually roll your 401(k) over into a self-directed IRA account with the help from a respectable retirement asset management company like www.iamllc.biz

PRO - Free Money Through Company Match

By far, one of the biggest advantages to investing in a 401(k) is the free money you can receive with your employer’s 401(k) match program.  Most large companies that sponsor a 401(k) retirement option for their employees also provide a matching option.  Usually a company will match, up to a limit, the amount you withhold into your 401(k) each paycheck.  Matching limits are generally 3% to 6% of your income.  However, over 10, 20, or even 30 years, that “free” money match can significantly increase your 401(k) account balance, and in turn, significantly increase your investment returns over that time.  If your company offers a 401(k) matching program, you’d be wise to take advantage of that free money and withhold up to their matching limit.

There are several pros and cons to investing in your 401(k).  Consider consulting with a retirement planning specialist like www.iamllc.biz to determine if this investment vehicle is right for your future.  

Authored by Ken Himmler, Sr.

While we all want to “retire” as soon as possible, planning to pay for our golden years is relegated to the back burner of our daily lives.  When you do spend a few moments on your retirement planning, make sure you avoid these pitfalls that could leave your retirement fund balance with far less than your goal.

1. Failing to Save Early

What younger workers often fail to realize is that starting a retirement fund early can prevent them from having to save a lot in the future.  A retirement fund started at 25 compared to 35 years of age can mean a compounded interest difference of tens and possibly hundreds of thousands of dollars at retirement.  Saving early, even just fifty dollars a month, can result in an outstanding retirement fund balance.

2. Failing to Save for Your Goals

To accurately create your retirement plan, you need to know what you want to do while you are retired.  Do you want to travel?  Live on a sailboat?  Or maybe just have a nice house close to the grandkids?  Planning your retirement can help determine how much you need to save, especially if you started saving later in life.  If you want a substantial retirement fund but only began saving at age 45, you have to put away much more per month to achieve your retirement goals. 

In addition, remember that Americans’ life expectancy continues to rise.  Be sure to plan your retirement for sufficient age expectancy. 

3. Depending on Just One Retirement Savings Option

Your 401(k) or IRA has investment options, all of which you have some amount of control.  You have the power to choose which mutual funds, stocks, or other options to place your retirement funds for growth.   Be wise in diversifying your options so that you don’t put all your proverbial eggs in one basket.  Aggressive investing with high yield options at a young age can reap big rewards over decades.  However, a person closer to retirement age may want to retain conservative investment options to maintain a healthy retirement fund balance.

4. Ignoring Your Tax Implications

Uncle Sam has created a number of tax breaks for your retirement savings.  Take advantage!  Use the free money that your employer will contribute to a 401(k) retirement fund.  Save as much as you can from each paycheck and save paying income tax now.  However, also beware of high penalties and taxes for an early withdrawal of retirement funds.

5. Doing it all Alone

Remember that you are not alone when it comes to retirement planning.  Enlist the help of a retirement professional at www.iamllc.biz or planning expert at www.kenhimmler.com

 Having help understanding risks and implications of retirement saving can give you more confidence in your retirement planning.  Professional advice can give you a gentle nudge in the right direction and even provide some disciplined action goals to keep you on track.  

Authored by Ken Himmler, Sr.