The Rise of Mutual Funds: An Insider's View

The Rise of Mutual Funds: An Insider's View

The Rise of Mutual Funds: An Insider's View

The Rise of Mutual Funds: An Insider's View


In 1940 few Americans had heard of mutual funds. Today U.S. mutual funds are the largest financial industry in the world, with over 88 million shareholders and over $11 trillion in assets.The Rise of Mutual Fundsdescribes the developments that have produced mutual funds' long history of success. Among these developments are:

• formation of the first mutual funds in the roaring 20s
• how the 1929 stock market crash, a disaster for most financial institutions, spurred the growth of mutual funds
• establishment in 1934, over FDR's objection, of the United States Securities and Exchange Commission, the federal agency that regulates mutual funds
• enactment of the Revenue Act of 1936, the tax law that saved mutual funds from extinction
• passage of the Investment Company Act of 1940, the "constitution" of the mutual fund industry
• the creation in 1972 of money market funds, which totally changed the mutual fund industry and the entire U.S. financial system
•enactment of the Employee Retirement Income Security Act of 1974, which created Individual Retirement Accounts
• the accidental development of 401(k) plans, which have revolutionized the way Americans save for retirement
• the 2003 trading abuses, the greatest scandal ever in the history of the mutual fund industry

Many events have never been discussed in detail; others have been discussed in works on other subjects. This is the first book that pulls together the many strands of mutual funds' unique history, written by an expert who draws on forty years of personal experience in the fund industry.


There are a lot of things that can be said in favor of invest
ment trusts, but they make less interesting reading than the
things that can be said against them.

—Fred Schwed Jr.

On the morning of July 23, 1993, I was about to testify on the state of the mutual fund industry before the U.S. House of Representatives Subcommittee on Telecommunications and Finance. I planned to begin my testimony by referring to mutual funds as “a great American success story.” Before the other witnesses and I testified, Subcommittee Chairman Ed Markey beat me to the punch by declaring in his opening statement that mutual funds were “a genuine American success story.”

Chairman Markey and I were both correct. American mutual funds have been phenomenally successful. More than 88 million Americans own mutual fund shares. Over half the assets of 401(k) plans and almost half the assets of individual retirement accounts are invested in mutual funds. Mutual funds are the largest financial institutions in the world, with assets of over $11 trillion.

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