Earlier there was a time when you made investment in the CDs (Certificate of Deposits) in your local banks and simply left your money there till your retirement. Banks offered you the safety and some minimal guaranteed return on the money you invested.
In the 1990s, there was immense craze for the mutual funds and getting the returns of more than 25 % a year were quite common. Without any in-depth knowledge about the mutual funds, large number of employees simply plowed the huge amount of dollars in their 401(k) plans and then funded these plans with the mutual funds. During that time, large numbers of funds were surfacing in financial markets and claimed specialization in variety of investing disciplines.
All along their investing fervor, people simply forgot that markets usually never stay in such perpetual bullish form for ever. In my view, many unsuspecting investors can easily be forgiven on this oversight on their part. Our very last bull market was also the longest one in the financial history, thought it was surely funded by the deficit spending at the personal and national level.
Like all the good things, this Bull Run too came to an end and stock prices skidded and the home values have hit rock bottom to the dismay of all.
However, lots of folks got stuck with their funds in their 401(k) plans.
The main problem with almost all the open ended funds is that they can only purchase the stocks and can’t sell short. The result is that unless these market rise, he/ she will not make any money.
During the recession times the whole market tends to fall so it doesn’t matter as to which sector you invested in, the end result for you will be totally disappointing. This actually makes the long term investing strategy a difficult one for implementation. So at this moment the mutual fund industry in a bit confused.
In the current times when the markets have cooled off, the allure of the mutual funds has waned to some extend. Worst, there are virtually millions of investors whose 401k money is solely invested in the mutual funds. Though we had a somewhat nice run in the last year, any long term prospects for the mutual funds don’t look too encouraging.