mutual fund

Bogleheads

Financial advisersand our site

We regularly receive testimonials from investors, many of which we publish under Testimonials on our site. We want to bring to your attention a more unusual type of testimonial, this time from a financial advisor who seeks to help his clients using some of the principles of our site:

I work in the financial services 'industry'. Yes, the industry with such a lovely reputation, some would liken to grave robbers and Arsonists. A few of us do our best to serve the interests of customers. With that in mind, your website - and beliefs - is read, and better, appreciated. Keep up the good work. D.H., British Columbia

Can a financial adviser help you?

Larry MacDonald wrote two excellent articles on the issue: The first raises and discusses the question, and the second doc.1419 cites several studies which are not overly optimistic about the value of such assistance.

On the same subject, read a commentary on the ObliviousInvestor.com site that asks if your advisor should create for you a unique portfolio, or is it preferable that he build your portfolio using the same securities he purchases for his other customers?

Mutual funds

Two (more!) caveats about mutual funds.

First, if you did not already know it, ignore advertising by mutual fund companies. A mutual fund manager will only run ads about those funds he manages that have experienced positive returns, and will systematically ignore his other funds that have experienced low yields. Want an example? Here is a tongue in cheek ad by Roth (for the whole article, see Roth 2009 doc.1420  ) showing an ad you'll never see:

The second caveat: returns of mutual fund investors are typically less than those of the mutual funds themselves. Why? Because investors jump from one fund to another in search of better returns i.e. they practice market timing. Unfortunately market timing is rarely rewarding; see paper by Friesen Sapp 2009 doc.1421. Investors undoubtedly do the same thing with respect to exchange traded funds, although we have not seen any similar studies using data on ETF’s.

Lessons from the financial crisis

CanadianCapitalist has published an excellent list of the lessons investors can draw from the financial crisis. Read it!

The Bogleheads

The Bogleheads are a group of investors who follow the principles of John Bogle, founder of Vanguard Group, the non-profit corporation that advocates a index and low-cost approach to investing. Allan Roth attended their annual conference. You will find here the first of his reports on the activities at the conference. By clicking on More recent posts at the end of his article, you will find his subsequent reports on the same conference.

National securities commission

On October 19 the federal government announced it was asking the Supreme Court of Canada to rule on the authority of the federal government to create a national securities commission. This was politically facilitated by the colossal mistake of the Quebec (Charest) government, which had previously asked a similar opinion from the Quebec Court of Appeal. We believe the chances that the Supreme Court (who is advising Mr. Charest?) will rule in favor of Ottawa are in the order of 100%. The Supreme Court decision will move the idea of a national securities commission one step closer to implementation.