As we mark the centennial anniversary of the mutual fund, it’s an opportune moment to reflect on its profound impact to reduce risk from wealth planning strategies here in Blue Ash, Ohio. For a century, mutual funds have been instrumental tools in diversifying client portfolios and mitigating risk, shaping the very fabric of our financial landscape.
In 1924, the establishment of the first-ever mutual fund, the Massachusetts Investors Trust, revolutionized the investment landscape, democratizing access to diversified portfolios previously reserved for affluent investors. Fast forward to today, and mutual funds (and ETFs) have become a cornerstone of wealth management strategies, catering to investors of all backgrounds and financial goals.
Until this fund was launched, there were only two ways that ordinary individuals could invest in the stock market. You could buy individual stocks, but you had to buy round lots of 100. If the stock was $5, you needed 500 bucks. That was a lot of money in 1924. You also paid big commissions to the brokers, and all you got was one stock.
If you wanted to diversify, to lower your risks, say, by buying 10 stocks, you needed $5,000, and that was a whole lot of money in 1924. The only other way to invest with smaller amounts was to invest in a pooled investment, an unregulated fund where promoters charged exorbitant fees and bought highly speculative investments, often filled with self-dealing and conflicts of interest with no disclosures, little liquidity, no reporting.
At Total Wealth Planning, we recognize the important role mutual funds play in crafting resilient and balanced portfolios for our clients. By pooling funds from numerous investors and investing across a diverse range of asset classes, mutual funds provide unparalleled opportunities for risk mitigation and long-term growth. Whether it’s equities, bonds, U.S., or foreign, mutual funds offer exposure to a broad spectrum of assets, allowing us to globally diversify across world economies. This diversification not only reduces risk but also enhances the potential for consistent returns over time, laying the groundwork for sustainable wealth accumulation and financial security.
As we commemorate the 100th anniversary of the mutual fund, we can marvel at the amount of money invested in mutual funds. The fund industry is managing a total of $56 trillion, including $11 trillion in 401k plans and IRAs. In total, there are now 15,000 mutual funds trading in the US, with an additional 15,000 trading in the rest of the world.
We’ve also seen a lot of big improvements, most notably the invention of the ETF, or the Exchange Traded Fund, a technological improvement over the mutual fund. 100 years ago, pen and paper were the record keepers. Today, we have computer technology and that’s what the ETF world takes advantage of. So, whereas mutual funds offer a price only once a day at the end of the trading day, ETFs can calculate this on the fly throughout the trading day.
By staying true to our principles of prudent risk management, diligent research, and client-centric advice, we remain steadfast in our mission to help our clients achieve their financial aspirations using a combination of mutual funds and ETFs. As we celebrate this milestone, let us look ahead with optimism and continue harnessing the potential of democratized access to diversified portfolios for families like yours to build brighter financial futures.
About The Author: Rob Siegmann is a partner and chief operating officer of Total Wealth Planning, a fee-only fiduciary financial planning firm in Cincinnati (Blue Ash), Ohio. He is often quoted in industry publications such as The Cincinnati Business Courier, Wall Street Journal, Yahoo finance, Financial Planning Magazine, Cincinnati Enquirer as well as others. Rob is grateful to serve others, including his team of CERTIFIED FINANCIAL PLANNER™ practitioners and the clients they serve, so they can live their greatest life through well informed and prudent financial decisions. Rob can be reached at rsiegmann@twpteam.com.
