No load = less returns

The Advocate, Wednesday December 7, 1994

I was shocked ... and pleased. One of the speakers at the IAFP (International Association of Financial Planners) stated there had been a survey done by the Dalbar group (independent researchers) which proved that people who purchased no-load (Nick Murray, author of "Serious Money" says "no-help", I say "no-advice" funds) funds, end up with a "real" rate of return of less than those who purchase load (advice) funds, even though the funds performed with the same results.

The speaker went on to say that those who purchase "no-advice" (no-load) funds tend to get out of equity funds after a market turn-down, and not back in again until at least 50 per cent of the upwards market has been achieved!.

People with "advice" (load) funds are told by their representative to remain in the equity funds, and they end up better than those who got out. The report goes on to say, those who bought "no advice" funds ended up with an average of 1.21 per cent per year less than those who bought load funds.

This study was done in the U.S. where a goodly amount of mutual funds are sold by brokers, who indeed do love to move people from equity funds to money market funds etc. And ... as this survey proves, they end up with less than half of the results the quity fund achieved had they remained with it through the period.

Yes, we at Regal do have clients who demand that we move their assets to money market funds if there is a market decline. We believe it is those people who do lose over the long haul, as they never get back in on time. They do not achieve the average the fund achieves, over the long term (in pocket or purse) ends up less than if they had remained in the fund.

A recent report in the September issue of "Strategic Investment" page 11, points out that if you had achieved the S & P 500 average over the period 1980-1989 (10 years), but missed just a few days, the following would have been your average results per year:
Invested full period = 17.5%
Not invested 10 best days = 12.6%
Missed 20 best days = 9.3%
Missed 30 best days = 6.5%
Missed 40 best days = 3.9%
Ten years equals 2,550 trading days. Can you imagine that by missing just 40 of those 2,550 days you would have reduced your results from 17.5% to just 3.9%.

Does the fund manager or the "average" investor know when those "best days" are going to be? Certainly not. And if they are sitting in a money market fund, or bond fund, they will miss those days. It's almost a certainty.

The Dalbar study shows that those who try to do better than the market (timers), who seek "no-advice" funds, are those who LOSE. The winners are those who buy and hold.

I have an excelent chart to illustrate that point. Contact me for your copy.

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