At 100, mutual funds’ appeal growing

This year marks the 100th anniversary of the mutual fund, a versatile investment vehicle that has significantly facilitated middle-class Americans' access to diverse investment opportunities such as stocks, bonds, real estate, commodities, and foreign markets. Mutual funds have proven resilient over time, enduring economic recessions, wars, and other disruptions. Since the inception of the first mutual fund, the Massachusetts Investors Trust in 1924, these funds have become a staple in retirement accounts. According to Sean Collins, chief economist at the Investment Company Institute, mutual funds have democratized investing, allowing 116 million Americans to engage in financial markets.

Over 71 million households own at least one mutual fund, according to the Investment Company Institute's 2024 Fact Book. Retirement accounts, especially 401(k) programs, are common entry points for younger investors, often offering a dozen or so fund choices. The average household investment in mutual funds is $125,000 across three different funds. These funds have also made the financial markets more accessible to middle America, as noted by Alan Norris, a Phoenix-based certified financial planner. Mutual funds hold a significant portion of U.S. stocks, corporate bonds, and municipal bonds, pooling small investments from millions to make substantial purchases.

While the mutual fund industry is global, its popularity is more pronounced in the U.S. than in other countries. Americans have embraced mutual funds to a greater extent, with nearly twice as much money invested in these funds than bank deposit accounts. In contrast, Japanese and European investors favor bank deposits and currencies over mutual funds. At the end of 2023, Americans owned $33.6 trillion in mutual fund assets, nearly matching the $35.3 trillion owned by investors in all other countries combined. U.S. households hold approximately 88% of these assets, underscoring the funds' widespread appeal among individual investors.

Mutual funds have become more cost-effective over time, with a notable reduction in investor-borne costs. The majority of funds are now sold without commissions or loads, a shift from past practices where funds charged up to 8.5% off the top. Today, 92% of long-term funds are sold without a sales load or related fees, a significant increase from 46% in 2000. Additionally, ongoing expenses for managing these funds have decreased, with the typical stock fund expense ratio dropping from 0.99% in 2000 to 0.42% in 2023, and bond funds seeing a similar decline. Exchange-traded funds (ETFs) and index funds offer even lower costs due to their less active management and reduced trading expenses, further enhancing their appeal to investors.

For more information see Russ Wiles "At 100, mutual funds’ appeal growing", Lubbock Avalanche-Journal, July 7, 2024.