Average is not enough for top advisors

The Advocate, September, 1996

I just returned from our annual conference at the Algonquin, St. Andrews by the Sea in New Brunswick and read Ms. Butchart's response to my article last month. Thank you Ms. Butchart for your thoughtful response to my article, "Mr. Normal or Mr. Investor - the choice is yours." After nearly four years of publishing my monthly column I would have expected to be challenged long before this. It is rather refreshing to respond to Ms. Butchart's claims.

She states the rates of return were vastly over-rated based on past performances of equity mutual funds. She quoted June 30 figures from the Financial Post. She admitted two Canadian mutual funds had greater returns than 15 percent over 10 years. She said no International funds did. According to the June 30 sourcedisk there were two over 15 per cent and two at 14.5 per cent. Not what I would call vastly over-rated.

She neglected to mention there was one ( by the way, one most of my clients own) that has an annual rate of return of 18.2 percent for the last 15 years. This is the one that I was referring to in my article, not to mention the grand daddy of them all that I have written about several times before, the Templeton Growth fund, which has an average return over 15 per cent for the last nearly 41 years. The July 31/96 survey has several over 15 percent. June 30 had lower than normal returns due to the recent correction.

Ms. Butchart goes on in her letter to quote an average 10 per cent. I wonder why she chose the average? Do her clients expect the average? I know my clients don't. Perhaps because of Ms. Butchart's previous experience working for Investor's Group, she and her clients are used to receiving average returns. Now that she is an Independent, perhaps she will realize that a 15 per cent return is possible.

I usually do not quote specific rates of returns in my articles. I leave that for the papers and their ads. For reasons of clarity I wanted to prove it is possible with the "right" mutual funds, NOT the average ones. Perhaps because of Ms. Butchart's background she likes to be average. I do not.

As far as the tax implications are concerned, I am rather surprised that she does not understand that an income from a mutual fund carries with it a small tax liability compared to other forms of income. It is called a systematic withdrawal plan (SWP). I have written about this before and have several articles that describe how it works. Call me for copies. Perhaps Ms. Butchart doesn't understand how they work.

At any rate, even if the returns were only 12 per cent it would still work. Although the numbers would be reduced somewhat. With five year mortgages at less than 8 per cent you still have a four percent spread. Why didn't she mention that?
It's amazing how certain people, just to prove a point, forget to show the other side of the coin. Talk about a distortion. I'm sure Ms. Butchart should be able to make 12 per cent for her clients now that she works on her own.

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Created: Mon Sep 23 10:30:50 1996
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