Mutual funds will see outflows of more than $1 trillion by 2010, according to Forrester Research of Cambridge, Mass. In the same period, the number of mutual funds will be cut in half, according to the company. The predictions are based on the outlook of financial service dot coms and the alternative investment vehicles they offer.

"Financial dot coms are offering Americans alternative investing methods," according to a report issued by the firm. "While these new approaches will face stiff industry opposition, Forrester believes they will overcome their hurdles and end the mutual fund's reign as the investment vehicle of choice."

Among the advantages these alternative investment vehicles provide are small minimum investments, customized baskets of securities, separate accounts with lower fees and transparent funds that constantly disclose holdings, according to the report.

The advantages of these products will outweigh the challenges they face such as industry opposition, according to the report.

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