R.C. Longworth’s June 2 article “Mutual fund milestone” quotes David Hale that “the federal government has 40,000 employees supervising the banking system but only 200 to oversee the mutual fund industry.” You conclude that “Banks are heavily regulated; mutual funds are not.”
Wrong! Mutual funds are in fact regulated by the Securities and Exchange Commission, and one cannot think of a case where a mutual fund management has taken shareholders’ money by fraud. (Stupidity can cost shareholders a lot of money, but if being dumb were a crime, we would have to increase the number of prisons in Illinois rather substantially.)
Other financial services can make no such claims. Bankers have been crooked as well as reckless (Penn Square), insurance companies have been completely spurious (Equity Funding), stockbrokers have dozens of disciplinary actions per month. Of the savings and loans, I need quote no examples.
Your point that mutual fund returns are not guaranteed by the government is correct. Financial markets are risky. Returns are likely to be lower than the spectacular results for stock funds over the last three years. Bear markets have not been seen recently, but are not an extinct species. Mutual fund shareholders have been warned of these risks in the fund prospectus. If you are investing regularly in a mutual fund, a drop in the market lets you buy more stock per dollar.
