An investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. Professional fund managers make investment decisions, and investors own shares proportional to their investment.
Concept originated in 18th century Netherlands but modern mutual funds began in 1924 with the Massachusetts Investors Trust. Called 'mutual' because investors mutually share in the fund's gains and losses, distinguishing them from insurance company separate accounts.
Mutual funds democratized investing but created a paradox! While they give small investors professional management and diversification, the average actively-managed fund underperforms the market after fees—meaning many investors would do better with simple index funds that just track the market.
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