If you've ever gathered up a group of friends and pooled your pocket change to buy a pizza, you'll understand the basic principle of a mutual fund. By combining several small contributions, you were able to buy something bigger and better than any of you could have managed on your own. There are thousands of mutual funds currently sold in the United States, with the oldest dating back to the Roaring '20s.
The idea of investors pooling their resources and jointly purchasing a diversified portfolio has been around for a while. Dutch investors pioneered the concept in 1774 with a fund limited to 2,000 investors. Over the 18th and 19th centuries several similar funds were established in the Netherlands, England and France.
The first modern mutual fund in the United States was the Massachusetts Investors Trust, established in 1924. Unlike the earlier versions, this fund was open-ended, meaning investors could make ongoing purchases and redemptions of units in the fund. The fund was opened to public investment in 1928 and survives as of the date of publication as MFS Asset Management.
Several other early mutual funds are still active as of the date of publication. These include the Putnam Investor's Fund, launched shortly after the Massachusetts Investors Trust in 1925. The Pioneer Fund and Century Shares Fund were launched in 1928, and the Vanguard Wellington Fund and CGM Mutual Fund reached the market in the fateful year of 1929. The original Fidelity Fund was established in 1930, in the vastly different world of the Great Depression. The Dodge & Cox Balance Fund arrived on the markets one year later, in 1931.
Many of these pioneering funds have grown into fund-management companies with a significant market presence. Fidelity has grown to be one of the largest fund management companies in the world, administering more than $3 trillion in assets as of the end of 2011. MFS Asset Management remains a substantial player. During the brutal 2008 recession, Barron's rated MFS fourth on its list of fund companies that suffered least. The Wellington Fund is now part of Vanguard's aggressively marketed family of low-cost mutual funds, and the Dodge & Cox Balanced Fund still provides solid returns.
Long-term performance and stability of management are desirable characteristics in a mutual fund, and many of these investment-world graybeards have performed well over the decades. A 1999 article by CNN Money profiled several older funds and fund families, noting that nine of the 10 oldest funds had annualized average returns of 15.25 percent to 18.27 percent over the preceding 15 years. In 2012, investment website Seeking Alpha profiled the oldest funds, calculating the current value of a $10,000 investment in each fund at inception. An investment in the Massachusetts Investors Trust would have earned more than $18 million, slightly more than an investment of the same amount in the Putnam Fund. Fidelity would have returned $23 million, and the Pioneer Fund would have returned a whopping $107 million.
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