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Your Fund $$$ at Work

At the end of the last century there was one recognizable mutual fund in the United States. It was primarily a rich families' money-management pool. A few funds for average investors opened toward the end of the Roaring '20s.

As we near the close of this century, the number of funds is climbing rapidly toward 7,000. And their investors come close to being everyman and everywoman. Included are union members, office clerks, college profs, small-business owners, retirees, and bright teenagers.

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The fastest-growing sources of investment on Wall Street are the many forms of pension money: 401(k) (employee-directed company plans), 403(b) (nonprofits' plans), IRA (for those not covered at work), Keogh and SEP-IRA (for the self-employed).

Big, company-directed fixed pension money is managed separately from the mutual-fund industry. But most of the new payroll savings billions are being put into mutual funds - selected by average Americans.

That's why recent years' management changes at the world's largest mutual fund, Fidelity Magellan, have rated top news coverage. At $56 billion, Magellan is a behemoth - although its assets are only about 1.8% of the total in all mutual funds.

Magellan is news for the same reason that Tom Cruise is news. It's been a blockbuster star since silver-haired Peter Lynch became magazine-cover material. But Magellan, like namesake Ferdinand Magellan, has had a split image. On the one hand, it has been admired for its pace-setting navigation to find market winners. On the other, it has faced periodic warnings that it was headed for grief, not in Philippine waters but in investment markets too shallow for its huge bulk.

This split image mirrors today's major debate about global stock and bond markets: Is too much money flowing in too fast, inflating markets beyond their intrinsic value and growth prospects? Are pensions (and college nest eggs and house downpayments) at risk?

Worries have been raised by several factors: the derivatives scare of last year, bad-mouthing by short sellers (who make money when stocks decline), and demagoguery against "Wall Street" by politicians (like Pat Buchanan). Longer term, statistical analysts fret about a falloff of demand when baby boomers retire in the next century.

A basic level of caution on the part of investors is always healthy. But scares about "Wall Street" are misleading. Great pools of money are managed out of Kansas City; Minneapolis; Boston; Baltimore; St. Petersburg, Fla.; Denver; and San Francisco. There are, of course, still buccaneers practicing the Machiavellian shrewdness of a Rothschild or J.P. Morgan. But today's managers of "other people's money" are carefully watched by Securities and Exchange Commission examiners, their own management controls, and - increasingly - corporate 401 (k) management officers.

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The old truism that greater risk accompanies greater return is still valid. But generally the rapid rise of mutual funds has brought the relative safety of diversification plus higher rates of return on savings to tens of millions of Americans in the latter half of the century. All that pension-fund money is providing an engine for growth in businesses large and small, in rich and poor nations. It is also providing a welcome hedge against the risk that Social Security will provide for less satisfactory retirement income for tens of millions of Americans.

The size of this national nest egg demands good sense from both presidents and Congresses to come. Foolish restrictions on world trade, insufficient funding of the SEC watchdog, snap reactions to events in Hong Kong or Mexico, or old-style political demagoguing of Wall Street - all could damage blue- and white-collar life savings.

Wall Street is becoming Main Street. Politicians should realize that more Americans than ever before own a share in America - and the world.

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