Mutual funds began with a simple idea and have grown into a multi-trillion dollar industry today. It began with three Boston securities executives who pooled their money in 1924 to start the first mutual fund. This pooling of money for investment purposes goes back to the mid-1800s and, truth be known, it is probably much older than that. People have been pooling money to buy land, cattle, and products to sell for many years.

The first official mutual fund was created on March 21st 1924 and was called the Massachusetts Investors Trust. This first fund was very successful, increasing its initial investment of $50,000 nearly eight-fold in one year. It had 200 shareholders. Today, there are more mutual funds than there are stocks on the New York Stock Exchange.

The growth of mutual funds was greatly slowed by the stock market crash of 1929, as were nearly all other financial investments. Congress passed laws in 1933 and '34 to regulate the mutual fund industry by requiring registration with the Securities and Exchange Commission (SEC). It was required that fund companies provide a prospectus to any interested party as a way of revealing the details of any fund investment.

The Investment Company Act of 1040 set out the guidelines for mutual funds, which are still in place today.

A big boost for mutual funds was the Individual Retirement Account (IRA) developed in 1981. This allowed individuals, as well as those in corporate pension plans, to contribute $2,000/year. Mutual funds are a significant part of company retirement plans such as 401k and 403b plans, as well as IRAs and Roth IRAs.

Before I retired, my company 403b plan allowed me to invest in mutual funds from three major companies, Fidelity, TIAA/CREF, and Vanguard. Upon retirement, I was able to roll that money over into a retirement IRA, either with the same mutual funds or any fund I chose.

Today, buying mutual funds can be at least as complicated as buying individual stocks and the same due diligence is necessary.

Learn more about this author, Rob Bryant.
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