Now mutual funds, that was eight trillion dollars. $8 trillion. So what is a mutual fund? Well, in your book, money Money changes Changes everything. Everything, Will Goetzmann claims that they date back to the 1770s. This is the name of a Dutch. Of course, it's the Dutch who invented everything in finance. Well, I'm exaggerating, but it's I like that. They had one. I can't pronounce that. That's the name of a mutual fund from the 1700s. There were many investment companies that developed over the centuries. Notably in the 1920s, there were many investment companies that offered to invest your money for you, but they weren't properly regulated. regulated, and a lot of them were playing tricks, tricks. But notably, Notably, they'd have different classes of shares, and the classes were designed in a tricky, deceptive way so that they, the owners of the Class A shares had much better prospects than the general public that were in the Class B shares. So after 1929 when a lot of these investment companies revealed their really bad performance, it led to a public antagonism against investment funds. Now, the leader in the United States was Massachusetts Investment Trust called MIT. No connection with that Institute of Technology. It had a fund with only one class of investors. Moreover, it published the portfolio, so it was no secrets, and it redeemed on demand. That is if you invested in MIT, you could get your money back any day with just a phone call. Now, they had telephone. Everyone had a phone. You could call MIT and say, "I want my money up." And they would cash you out at value. In other words, what your share of the total MIT portfolio was. And after 1929, a lot of people looked on MIT as a model for investment management. So Investment Company Institute was set up, I think it's in the 1930s, and they began advocating for this kind of investment company. And in 1940, the Investment Company Act further clarified, although the word mutual fund doesn't appear in that act. So do you understand? Let me say, what is a mutual fund? They're very popular. What they do is a classic mutual fund as defined by the SEC under regulation. If you want to buy into a mutual fund, you have to contact the mutual fund, or there are these supermarkets now that will allow you to put it, but you're not buying shares on an exchange. You contact the mutual fund and you say say, "I'd like to invest in this fund." You give them a check for say say, $10,000, then you will come in as an equal at 4:00 pm on the day you do that. They'll They only deal at the closing price. So then then, you now own a share of the overall portfolio for the mutual fund. The mutual fund subtracts expenses for managing the fund. They pay their salaries. But otherwise, you own what's in that portfolio, your share of what's in that portfolio. And when they decide to sell someday, you call them up again and say say, "I'd like it." Then at 4:00 pm on that day, they'll figure out what your share of the total portfolio is and give you that in cash. That's a mutual fund. Another kind of investment fund was not invented until the 1990s. It's called an exchange traded fund. And fund, and it operates differently than a mutual fund. Now these are all described in Forboce's Fabozzi's chapter which I assigned assigned, which is a good background reading. Exchange traded funds are, maybe they're more pitched at people who like to trade in and out. They don't like this 4:00 pm rule. And ETFs are a kind of investment fund that is more liquid and tends to have lower management or expense ratios. They were promoted as for smart investors who don't need the mutual fund structure. So here's how it works. The first ETF was for Standard and & Poor 500 stock price index. The first ETF was called the SPDR, Spider, SPDR, that's Standard and Poor Depositary Receipts. And they were only going to invest in the S&P 500. You could actually buy the S&P 500 by buying an ETF. Let me step back a minute. Mutual funds are called open-end funds because you can pull your money in and out. You're owning a share in a portfolio, and you can get it out at market value at 4:00 pm of every day. There's another kind of fund which Forboce Fabozzi talks about called a closed-end fund. A closed-end fund is different from a mutual fund in that you buy a share in the fund on a stock exchange. That closed-end fund then is a share that you can't go back to the fund and say, "I want my money back." The fund invests the money, and it pays dividends out, but it doesn't redeem. It has IPO. It IPO, it issues shares and drops them on the market, but you can't go back to them and ask for it. Instead, you have to sell your shares. Now, the advantage to closed-end funds over mutual funds is that closed-end funds are trading continually all day long. So if the market is crashing in the morning, you don't have to wait until 4:00 pm to get your money out. If you want to do that, you just sell on the exchange immediately. But the disadvantage of a closed-end fund is that it doesn't track the value of the underlying assets necessarily because it has its own market, and sometimes they sell at premiums and sometimes they sell at discount. discounts. Now, there's no tight process enforcing that the value of the fund is equal to the value of the investments. investments because you can't get your money out. In other words, it's very hard to get your money out. And so it could be selling at a discount for years and you're, tough luck, you know? You say, "Why don't other investors know this?" Well, maybe they don't trust the management, or something like that the management of the closed-end fund is incompetent. So ETFs were developed as an alternative to closed-end funds and to mutual funds funds. As an invention. It invention, it was at the American Stock Exchange in 1993. I met the guy who invented them. What was his name? If you I can't remember it at the moment, but it's not that old. He said said, "How can we make it something like a closed-end fund? Let's traded trade it on the exchange and make sure that it tracks the underlying value." And so he had the idea that we will create a fund that is not for the general public, but for arbitrageur is arbitrageurs, it's this is immediately redeemable. So if it's selling at a premium premium, we want to create a mechanism that will restore the price. So the mechanism is that they have authorized participants participants. When you create an ETF like the SPDRs, you identify a group of Wall Street firms that we will authorize as participants in this ETF market, as opposed to just shareholders in the ETF market. And the ETF authorized participants are authorized to either create or redeem units in large amounts say, a million dollars. That wouldn't appeal to retail investors. But investor, but we're putting in there for a purpose so that the ETF doesn't sell at a premium or a discount. So if the ETF is selling at a discount, that means you can buy it for less than the asset value, the authorized participants can redeem. There's a process for them to redeem the shares and get the underlying shares back. So they will do that if there is ever much of a discount. If they're selling at a premium, that is people are paying more for the ETF than the stocks that it holds, they can create more ETF. But again, in big units, let's say a million dollars. It's dollars, it's in the contract for the ETF. So they do this. The reason we're making that happen is to keep the ETF price tracking the underlying price. And so that's an ETF, automatic creation and redemption. There's many ETFs now. I don't think it was shown separately on the Federal Reserve. I think it would be understocked, but a lot of people own stocks through ETFs now. But it's still not as big as mutual funds. Typically for smart investors, they don't advertise, but they do advertise fire SPDR as you'll see, but I don't think it's as much. And they have a very low management fee, typically, something like 12 basis points.