What is a Mutual Fund?
November 24, 2003
Sen. Peter Fitzgerald (R-Ill.) has suggested banishing the phrase "mutual fund" from our financial vocabulary because of investors wrongly thinking they collectively own a fund company.
That got us thinking. What if we asked college students and professors to define the term "mutual fund?" Would our feedback be a la Jay Leno's "Jaywalking" segments in which the egg-headedness of the United States blares through our T.V. screens? We had to find out.
So as Money Management Executive staff intern and New York University graduate student, it became my job to ask the question that nobody ever asks. What the heck is a mutual fund?
"Something that is shared mutually," 20-year old NYU journalism major Sabrina Shankman said. Her friend Maria Finley, 19, said she didn't think many NYU students knew what mutual funds were.
Maybe Finley was just talking about undergraduates, because Nick LaBruna, 23, who will be receiving his master's in public policy from NYU this May, hit it pretty squarely. He called mutual funds "a portfolio of stocks that is managed by professionals. The companies are usually related, like tech companies or socially-responsible companies."
On a rainy day in New York, the financial capital of the world, I thought of my undergraduate school in South Jersey, Rowan University. What would the Rowanites think a mutual fund is?
Elaine Worden, my successor as news editor of The Whit, Rowan's campus newspaper, was taken aback by the question. "I'm not good with financial information, said Worden, 22. "I could make an educated guess but I think it would be wrong."
Her educated guess: "I'm going to say a mutual fund is somehow related to the stock market and it's a way to build up your portfolio through investments." Somehow related to the stock market?
Back in New York, I punted the question around the table in my seminar course, "The Journalistic Tradition." While some future members of the fourth estate looked at me puzzled, others tried to combine brainpower and come up with the perfect answer. I just smiled and shrugged, offering a smug "Hey I know the answer. I'm just asking you guys."
But Emily Schetler, 28, did not need anybody's help. "It's like a stock portfolio," she said. "If you buy one share in a mutual fund you're actually buying a bunch of different stocks." It turns out Schetler knew from experience. While working for a public relations firm during the bull market, she bought into a tech-laden T. Rowe Price fund.
Of course, the small amount she invested is now gone, but she is left with at least the knowledge of what a mutual fund is.
Mary Quigley, a graduate professor, called mutual funds "a low-risk way to invest your money if you're not an expert or do not want to be an expert in the stock market." She said she had a friend who compares individual stock buying to throwing darts. But Quigley, who has some funds herself, likes the chances of mutual funds a lot more. "It improves your odds of a dart hitting the right spot on the board," she said.
So although it appears unlikely that Fitzgerald will get his wish about discarding the term "mutual fund," he could make the argument that some people never even knew what the term meant to begin with.
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