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The challenge facing mutual fund companies and life insurers is to transform volatile stocks into stable investments that offer retiring Baby Boomers predictable income or protection from losses.
As if that isn't hard enough to accomplish, they are trying to do it at a low cost to investors and in a way that doesn't lock up money for years, as has been the case with many traditional guaranteed investments such as annuities.
Appetite for these products was heightened last year when even conservatively managed funds delivered steep losses to those on the cusp of retirement. Chief among the losers were most target-date mutual funds, which offer a mix of stocks and bonds tailored to an investor's expected retirement date. Most were loaded up with stocks, based on the idea that even at retirement as investor could live another two or three decades and needed the growth potential. The result was that the average target-date fund lost 32% in 2008.
The bear market also took its toll on many "payout" funds, which aim to deliver steady retirement income but don't guarantee it. Sold by giants such as Vanguard Group Inc. and Fidelity Investments, many of these funds suffered big losses last year, which led to lower payments to investors.
Although more firms than ever are trying to come up with products designed to make stocks safer for older investors, the track record of such investments is mixed, at best.
Source: The Wall Street Journal, July 6, 2009
