BOSTON (AP) — It seemed such a lackluster moment: a few guys pooling their money to invest in stocks like the Lowell Bleachery Co. It turned out to be a big deal, a very big deal. That pooling of money on March 21, 1924 marked the introduction of the Massachusetts Investors Trust — America’s first mutual fund.
From the time Investors Trust began trading in July 1924, it flourished and was widely copied, opening the doors to stock market investing to millions of middle-class people.
In the past 75 years the mutual fund idea has turned out to be one of the biggest stories in the financial world, although it took some time to evolve.
“Mutual funds have been kind of the greatest growth story of the 20th century,” said Robert C. Pozen, head of investment management at Fidelity Investments, which has more than $750 billion in assets under its control.
Massachusetts Investors Trust itself has grown enormously from its initial portfolio, which included 50 shares of General Motors, 20 shares of the Texas Company (now known as Texaco) and 10 shares of the Naumkeag Steam Cotton Co.
“It had five shares of General Electric in it. Today there are 1.9 million shares of General Electric,” said David Oliveri, a spokesman for MFS Investment Management, which now controls the fund.
Total assets amounted to $50,000 in 1924. Today, America’s oldest mutual fund has $12 billion in assets — a minute percentage of the $5.7 trillion total invested in mutual funds as of January 1999, according to the Investment Company Institute.
The fund’s changing portfolio paints a picture of how far American business has progressed in 75 years.
Back then, “there was an emphasis on utilities, an emphasis on railroads, and a couple banks and insurance companies,” said John Reilly, another MFS spokesman.
Today, financial services and health care account for more than 30 percent of the fund’s stock. In 1924, MIT had shares in the Baldwin Locomotive Co. Today it owns IBM and Microsoft.
And the Massachusetts Investors Trust has paid off. MFS says $10,000 invested in 1924 would be worth $12.5 million today.
As the American business scene has evolved, so have American investing options. The mutual fund was on the vanguard of a movement that gave average people the chance to invest.
“There were a lot of investing opportunities for wealthy people at that time, but mutual funds were a great opportunity for people in the middle class or the upper middle class to invest in the stock market,” Oliveri said.
Samuel Hayes, a professor of finance at Harvard Business School, said there were few investing options in the 1920s.
“It was a passbook savings account, essentially. Or a government savings bond,” Hayes said. “You could buy a home; buy a piece of real estate. But there were very few ways to put money to work.:”
As the American economy heated up in the 1920s, more and more average people tried to get involved in the stock market. However, they met with disastrous results when the market crashed in 1929, Hayes said.
“The stock market roared up and people made a lot of money, but it was also being manipulated by wealthy investors,” he said. “So ultimately the average investor got clipped.”
Although other funds launched later in the 1920s failed, the MIT fund weathered the crash and the Great Depression.
The nation’s economy recovered after World War II, but the mutual fund business puttered along as fortunes were made in such sectors as manufacturing and advertising.
“Even in the early 70s, there was some question about whether the mutual fund industry would survive,” said Robert Ash, managing director of Fleet Investment Management, which handles marketing and sales of Fleet’s Galaxy Funds.
But following regulatory changes in the 1980s, the modern mutual fund industry sprang to life as Americans began using IRAs and 401(k) plans to take greater control of their financial futures. The new retirement plans not only hastened the demise of old-fashioned pension plans, but helped fuel the explosive popularity of mutual funds.
The end result has been a heightened level of public sophistication about investing, Hayes said.
“When (people) were expecting to receive a pension, they never gave a thought to how their capital was invested,” Hayes said. “But now that it’s on their shoulders, they’re a lot more interested in how that works.”
The Investment Company Institute, a trade organization of mutual fund firms, estimates that about 66 million Americans, in 37 percent of the country’s households, have money in funds.
“They have opened up the doors to average Americans to help build wealth. They’re an ideal investment for average folks largely because they make investing simpler,” said Chris Wloszczyna, the group’s spokesman. “Not that long ago, maybe 15 years ago, a lot of people really didn’t know what a mutual fund was.”
Modern retirement plans have “made investing an everyman kind of transaction,” said Jack P. Kutner, president of First Data Investor Services Group, an outsourcing firm that provides support to financial services businesses. “You can have technical level or even blue collar workers who are familiar with their company’s stock.”
It’s impossible to say what Americans’ personal investing habits will look like in 75 years, but Ash sees continued savvy. While the generation that lived through the Depression might worry about losing their investments, younger generations are more inclined to worry about not investing enough, Ash said.
“Now the biggest fear of most people is outliving their retirement benefits,” he said. “People are learning that equity is not necessarily risk-oriented.”