The Year was 1924, the Man was Ed Leffler

The Dough Roller regularly looks Back to the Future because “even if the time for action has gone by, the time for extracting a lesson from history is ever at hand for those who are wise.”–Demosthenes (384-322 BCE)

I read an article the other day about closed-end mutual funds by Fire Finance entitled, Closed End Mutual Funds–Should We Stay Away From Them, which reminded me of Ed Leffler. But before we turn to Ed, what is a closed-end mutual fund, how is it different than an open-ended mutual fund, and which one do you own?

A closed-end mutual fund has a set number of shares that are sold initially through an IPO. You buy and sell through a broker; the fund does not redeem shares. An open-ended fund can issue more shares to existing or new investors, and it prices those new shares based on the Net Asset Value of the fund. Most if not all of the mutual funds you own are open-ended funds.


Before the Great Depression, most all funds were closed-end funds. It gets worse. The funds did not disclose their investments and set the value of the shares of their fund, a value that was usually significantly inflated. Of course, the market eventually caught up with these funds (as it always does) in the crash of 1929 and the ensuing carnage.

So back to Mr. Leffler. In March 1924, Mr. Leffler did what, at that time, had never been done before. He started an open-ended mutual fund. He named it the Massachusetts Investors Trust, which in Mr. Leffler’s words, allowed “investors [to] present their shares and receive liquidating values at any time.” Today, most mutual funds are modeled after Mr. Leffler’s open-ended fund. In 1924, however, his new fund was one-of-a-kind, and not until after the painful lessons of 1929 did the open-ended mutual fund gain traction.

So the next time you contribute to a mutual fund in your 401(k), IRA, or otherwise, think of Mr. Leffler who paved the way.

Topics: Investing

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