Investing Advice

History of Mutual Funds

Mutual funds are not an American invention. The first was started in the Netherlands in 1822, and the second in Scotland in the 1880's.

Originally called investment trusts, the first American one was the New York Stock Trust, established in 1889. Most that followed were begun in Boston in the early 1920's, including the State Street Fund, Massachusetts Investor's Trust (now called MFS), Fidelity, Scudder, Pioneer, and the Putnam Fund.

In the 1960's there was a phenomenal rise in aggressive growth funds (with very high risk). Sometimes called "go-go" funds, they received the majority of the billions of dollars flowing into mutual funds at that time. In 1968 and 1969, over 100 of these new aggressive growth funds were established, bragging about how heavily invested they were in the new technology stocks.

A severe bear market began in the fall of 1969. People became disillusioned with mutual funds and the stock market. "The market's toast. it'll never get back to where it was!" was echoed by panicked investors.

Unemployment grew, inflation went crazy, and investors pulled billions back out of the funds. They should have hung in there! Even the author of this book made the mistake of cashing in his mutual fund shares. The fund he jumped ship on has risen 9,000% since then.

At the end of the 1920's there were only 10 mutual funds. At the end of the 1960's there were 244, and 413 in 1980. Today there are more than 6,500 unique funds and even thousands more that differ only by their share class (how they are sold, and how their expenses are charged).

The 1970's saw a new kind of fund innovation: funds with no sales commission called "no load" funds. The largest and most successful no-load family of funds is the Vanguard Funds.

Before we continue with all you need to know about mutual funds, here is something that merits your attention. Since 1940, no mutual fund has gone bankrupt. You sure can't say that about banks or savings and loans!

You may be wondering that with thousands of mutual funds and many, many types, how does one intelligently select the best one? Well, we're going to explore the various kinds and some of their good points and bad points.

Keep in mind that before you invest, you need to know what a fund buys, what the manager's philosophy is, and what gives you confidence that this is a good fund to own. If you can't answer these questions in just a couple of sentences and in a way that your grandmother can understand, then maybe the fund isn't for you.

Choosing a fund isn't complicated unless you want to make it so. I am going to show you your options, but if you want a no-brainer that will definitely work, just put every extra dime into the Vanguard S&P 500 Index Fund. Keep throwing your money at it month after month and you will outperform at least 80% of the professional money managers. The reason that we don't end the chapter right here with this advice is that by educating yourself with additional information, you can do even better.

Other Stock Market Basics Topics:

  1. Mutual Fund Advantages
  2. History of Mutual Funds
  3. NAV
  4. Dollar Cost Averaging
  5. General advice about choosing a fund
  6. Mutual Fund Ratings
  7. Evaluating Mutual Fund Investment Risk
  8. Mutual Fund Share Classes
  9. Mutual Fund Fees
  10. The Mutual Fund Prospectus
  11. How important is the manager's length of experience?
  12. Why is the prospectus hard to understand?
  13. Mutual Fund Annual Report
  14. Comparing your fund to the competition
  15. Comparing funds on an after-tax basis
  16. Average Return on Investment
  17. How Not to Pick a Mutual Fund
  18. Cashing in Your Fund
  19. When to Sell Your Fund
  20. Mutual Funds and Asset Allocation
  21. When to get started with a mutual fund
  22. Types of Mutual Funds
  23. Value Stock Funds
  24. Growth Stock Funds
  25. Small and Micro-cap Stocks
  26. Mid Cap
  27. Large Cap Companies
  28. Income Stock Funds
  29. Mutual Fund Index
  30. Enhanced Index Funds
  31. Sector Mutual Funds
  32. Stock Market Sectors
  33. Defensive Stocks
  34. International Funds
  35. Real Estate Mutual Funds
  36. Socially Responsible Funds
  37. Balanced Funds
  38. Tax-Efficient Funds
  39. Bond Convertible Funds
  40. Junk Bond Funds
  41. Mixtures of stock types
  42. Closed End Funds
  43. Exchange Traded Funds (ETFís)
  44. Stock Picking Strategy - Picking your own stocks?
  45. Fund names, and what they really invest in
  46. How to get started
  47. Where can I start investing with no money?

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