A mutual fund is a financial vehicle that pools assets from shareholders to invest in securities like stocks, bonds, money market instruments and other assets.
This article was originally published by the Santa Barbara News Press on April 15, 2023.
Mutual funds are operated by professional money managers who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors.
The fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.
Mutual funds give small or individual investors access to professionally managed portfolios of a variety of securities. Each shareholder participates proportionally in the gains or losses of the fund. A mutual fund has a fund manager, sometimes called its investment adviser, who is legally obligated to work in the best interest of mutual fund shareholders.
The first open-end mutual fund with redeemable shares was established on March 21, 1924, as the “Massachusetts Investors Trust,” which is still in existence today and managed by MFS Investment Management.
Mutual funds didn’t really capture the attention of American investors until the 1980s when investors in them hit record highs and realized incredible returns.
Mutual funds are now mainstream investments and form the core of individual retirement accounts.
Today over $27 trillion is invested in open end mutual funds registered in the United States. In the U.S. alone, there are more than 10,000 mutual funds.
Despite the launch of separate accounts, exchange-traded funds, and other competing products, the mutual fund industry remains robust and healthy.
When I got into the financial services business in 1983 with Prudential-Bache Securities, mutual funds were just beginning to take off in a big way. My, have mutual funds changed since then!
Most of the mutual funds at that time were “front end loaded” with a commission as high as 8%!
Through competition in our “free market economy,” mutual funds have become better and better over the years. Today, the vast majority of mutual funds are “no-load” funds, and the management fees have become less and less.
One of the main advantages of mutual funds is that they provide diversification.
By investing in a variety of different assets, investors can reduce their overall risk. If one stock or bond in the portfolio performs poorly, it may be offset by the performance of other investments.
This diversification can be especially valuable for individual investors who may not have the resources to build a diversified portfolio on their own.
Another advantage of mutual funds is that they are managed by professional fund managers. These managers have experience and expertise in selecting and managing investments, which can help to maximize returns for investors.
Additionally, mutual funds typically have lower fees than actively managed investment options like hedge funds, which can make mutual funds a more accessible option for individual investors.
Over time, mutual funds have evolved to meet the changing needs of investors. There are now thousands of different mutual funds available, each with their own investment strategies and goals. Some funds invest primarily in stocks, while others focus on bonds, real estate, or other types of securities. There are also mutual funds that invest in specific industries, such as technology or healthcare.
Mutual funds have also become more accessible to individual investors. Many fund companies now offer low-cost, no-load mutual funds that can be purchased directly by investors, without the need for a broker or financial advisor.
Additionally, online investment platforms have made it easier than ever to research and compare different mutual funds, allowing investors to make informed decisions about where to invest their money.
Mutual funds have developed into an attractive investment option for many people, thanks to their diversification, professional management and accessibility.
While no investment is without risk, mutual funds can be a valuable addition to a well-diversified investment portfolio. By taking the time to research and compare different mutual funds, investors can find the right investment option to meet their financial goals.
Mutual funds are considered long-term investments. So once a quality mutual fund portfolio is put in place, remember to stay the course!
