What Is a Go-Go Fund?
Let me tell you directly: a go-go fund is slang for a mutual fund that chases high-risk securities to grab above-average returns. This aggressive strategy typically means loading up on growth stocks, which carry big risks but promise big payoffs if they hit.
Key Takeaways
- A go-go fund is a mutual fund centered on growth stocks and other high-risk securities.
- These funds hit their popularity high in the 1960s, drawing investors with promises of exceptional market returns.
- They were driven by speculative bets that proved unreliable, leading to their decline after the 1970s stock market crashes.
Understanding Go-Go Funds
You need to know that go-go funds lure investors with promises of outsized returns by juggling portfolio weights based on speculative tips. They rose to fame in the 1960s. Back then, investors poured into the stock market like never before. Over that decade, mutual fund investments more than doubled, and by the end, 31 million Americans held some stock. Mutual funds were a fresh option, and everyone wanted in on the exciting new financial scene.
This rush fueled a strong bull market. Investors were dead sure their holdings would keep climbing. That overconfidence boosted the draw of go-go funds. Sure, they delivered big profits for some, but the risk was massive. To chase those high returns, these funds often bet on shaky speculations that didn't always pay off.
Special Considerations
While go-go funds thrived in the 1960s boom, they faded fast afterward. The market peaked at 985 in December 1968, then crashed to 631 by May 1970—a 36 percent drop. This mutual fund meltdown reminded everyone that growth isn't everything in managing funds. Putting growth ahead of risk hammered equity funds, which didn't recover until the 1980s.
In his book The Go-Go Years, journalist John Brooks compares this collapse to the 1929 crash that started the Great Depression. He points out that the hardest-hit stocks were the popular ones where new investors jumped in first, making the 1969-1970 drop just as brutal for them.
Consequences of Go-Go Funds
After the 1970s crashes, go-go funds lost their appeal as investors got cautious about speculation and hyped returns. High-profile cases led the Securities and Exchange Commission to tighten rules on fraud and stock valuation, making it tougher for these funds to tout exaggerated gains. Plus, the unstable market post-go-go era sparked more interest in spreading investments around for safety.
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