What Is a Go-Go Fund?
A “go-go fund” is a mutual fund that invests in high-risk equities to achieve above-average returns. Aggressive go-go funds often have substantial stakes in growth stocks. Growth stocks are riskier but may yield more.
Understand Go-Go Funds
Go-go funds promise high, abnormal returns by altering portfolio weights around speculative information. They rose to fame in the 1960s.
A record number of investors entered the stock market that decade. Mutual fund investments quadrupled in 10 years. By the decade’s end, 31 million Americans owned shares. Many investors sought to enter new and exciting financial markets when mutual funds were available.
Wall Street’s enthusiastic investment fueled a bull market. Investors were sure their investments would expand. This sometimes mistaken optimism made go-go money appealing. Some investors made big money with these funds, but they were risky. In pursuit of huge returns, these funds made speculative bets that did not always succeed.
Special Considerations
Go-go funds were popular in the 1960s’ growing market but faded afterward. After peaking at 985 in December 1968, the market fell 36% to 631 by May 1970.
The mutual fund meltdown was a costly warning that fund managers should look beyond growth. The focus on growth over risk hurt equity funds, which didn’t recover until the 1980s.
In his book “The Go-Go Years: The Drama and Crashing Finale of Wall Street’s Bullish 60s,” financial journalist John Brooks compares the collapse to the Great Depression. The hardest-hit stocks included popular and high-profile offerings. “As measured by the performance of the stocks in which the novice investor was most likely to make his first plunges, the 1969–1970 crash was fully comparable to that of 1929.”
Effects of Go-Go Funds
After the 1970s stock market crises, investors were wary of risky investments and high returns, making go-go funds less popular. After many high-profile instances, the SEC clarified fraud and stock valuation laws, making it harder for go-go funds to guarantee exaggerated returns. Additionally, the unstable stock market post-go-go years fueled interest in investment diversification.
Conclusion
- Go-go funds invest in growth equities and other high-risk products.
- These funds surged in prominence in the 1960s, attracting investors with substantial market returns.
- However, the funds relied on risky speculative investments that lost favor after the 1970s stock market disasters.
