Chapter Three Mutual Funds: Principles, Practicalities, Performance An Idea Whose Time Has Come

“An invasion of armies can be resisted, but not an idea whose time has come.” While Victor Hugo wrote those words 140 years ago, they could easily describe the power of the mutual fund idea in 1993. From an also-ran financial intermediary with assets totaling $500 million in 1940, mutual fund assets soared to $500 billion in 1985, and then to $1.6 trillion by December 31, 1992. During the brief period from 1989 to 1992, investors added to their mutual fund holdings at a rate of more than $100 billion annually—larger than the capital inflow into any other type of U.S. financial institution, including commercial banks, thrift institutions, life insurance companies, private pension funds, and the retirement funds of states and municipalities. Clearly, mutual funds have become a force to be reckoned with in the financial firmament.

A major reason for the remarkable growth in the mutual fund industry has been the diverse classes of financial assets to which its principles have been successfully applied. The first U.S. mutual fund, founded in 1924, was a common stock fund, and for the next half century the industry was dominated by equity-oriented funds, including a few balanced funds, which maintained significant holdings of bonds to moderate the volatility of the stock market. As recently as 1974, common stock funds and balanced funds represented 86% of the mutual fund industry's total ...

Get Bogle On Mutual Funds: New Perspectives For The Intelligent Investor now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.