The History of Mutual Funds

Brian Watson, CFP

One of the most popular vehicles for investing today is the mutual fund. A mutual fund offers ease of use, diversification, and liquidity. But where did these funds come from? 

The history of the mutual fund starts in the 1880s, when the idea for pooling together money was used in the first pooled fund for faculty of Harvard University. This concept evolved into the first mutual fund in 1924 when three investment executives in Boston pooled their money together and formed the first mutual fund. A year later, the fund had grown from $50,000 in assets to $392,000 in assets and 200 share- holders. Today there are over 10,000 mutual funds in the U.S. totaling about $7 trillion in assets and approximately 83 million individual investors. 

The stock market crash in 1929 slowed the growth of mutual funds. The crash led to Congress passing two different securities laws in 1933 and 1934 that put in place certain rules that mutual funds and other investment vehicles must comply with.

By the 1960s, mutual fund assets had grown to $48 billion with around 270 different funds.  In the 1976, the first retail index mutual fund was created. The fund sought to track the performance of an index while minimizing investor costs. Mutual fund growth continued in 1981 with the creation of the Individual Retirement Account (IRA) that allowed individual investors to save $2,000 per year for retirement. Today, mutual funds are widely used in many types of retirement plans, including 401(k)s, IRAs, and Roth IRAs.

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