The First Mutual Fund

In the last article, I explained the history and impact of the first pooled investment vehicle: closed-end funds. Mutual funds borrowed some of those same concepts and took them to another level. Because of the enormous impact mutual funds have on everyday investors, this will be a two-part series.

What is a Mutual Fund?

A mutual fund is a simple concept: many people pool their money, and a professional manager invests it in a mix of stocks, bonds, or other assets. The advantages are clear. You get built-in diversification (you are not betting on just one company) and professional oversight.

Since constructing and managing an investment strategy can be challenging for many individuals, mutual funds provide a more accessible approach. They also help investors create diversified portfolios across a range of markets and asset classes.

Most mutual funds are actively managed, meaning portfolio managers decide which securities to buy and sell. Many portfolio managers are supported by teams of analysts and researchers.

A Brief History of the Mutual Fund:

If you have ever put money into a mutual fund, through a 401(k), an IRA, or a brokerage account, you have benefited from an idea that took shape in Boston more than a century ago.

In 1924, Massachusetts Investors Trust (MIT) created the first mutual fund. Three Boston area financiers, L. Sherman Adams, Charles H. Learoyd, and Ashton L Carr launched the Massachusetts Investors Trust with $50,000. That was not an enormous amount even then, but it was enough to prove the idea could work.

Remarkably, the first mutual fund created by Massachusetts Investors Trust still exists today and is managed by MFS Investment Management.

Before 1924: Investing Wasn’t For "Regular People"

In the late 1800s and early 1900s, investment pools did exist. However, for everyday investors, the process often came with steep obstacles.

• Hard to diversify: Many investors could only afford to invest in a few individual investments, which meant more risk if the investments lost money.
• The “closed-end” problem: Many early investment trusts and pooled investments were closed-end funds, meaning they issued a fixed number of shares. (For more on closed-end funds, see my Coastal Breeze News article dated May 7, 2026, “In Plain English: Closed-End Funds.”)
• Limited professional guidance: Small investors often had limited access to expert advice and trustworthy research.

Here is why that mattered: Once a closed-end fund sold all its shares, investors typically had to buy those shares on the open market. The market price did not always match what the closed-end fund’s investment was truly worth.

That mismatch could lead to frustration or worse. An investor could end up overpaying to get in or selling too cheaply to get out, even if the underlying investments had not changed much.

Why the Concept Caught On: Convenience and Confidence

MIT’s investment structure addressed challenges that had made investing uncertain for smaller investors.

• Straightforward buying and selling: Investors transacted directly with the fund.
• Simpler diversification: The fund diversified investment automatically.
• Clear pricing: Share value was tied to real underlying investments.
• Less dependence on market timing: Investors did not have to worry as much about whether the market price of the shares was fair on a given day.

Impact Today

Fast forward to today, and the influence is easy to see. Most traditional mutual funds still operate with the same basic framework MIT helped popularize.

• Shares are priced based on the value of the holdings.
• Investors can buy in and cash out directly with the fund.
• Professional management and diversification remain key selling points.

What began as an experiment in Boston grew into a global industry that now manages $69 trillion worldwide and roughly 24% of U.S. households are invested in mutual funds. While new products have emerged over time such as exchange traded funds (ETFs) and index funds, the core mutual fund idea that MIT created remains a foundation of modern personal investing.

Part 2 will be published on June 4, 2026. In that article, I will expand on how mutual funds changed investing for individuals, the role of portfolio managers, and why many investors still choose mutual funds today.