The Deception Used by Fund Managers to Keep You Fully Invested in their Funds

Right now Fund Managers want to hang on to your money at all cost. So they are resorting to deceptive TV Advertisements. Their livelihood depends on keeping the fund intact. The redemptions are up and some funds are down 30% or more through these redemptions and the stock market losses. This seriously affects the wallets of those entrusted with your retirement nest egg funds.

So now they are resorted to TV advertising with old tried and true scare-mongering using the “What if you missed out on the top 30 Days on the stock market?” premise. Some smartly dressed executive-looking actor tells you what fools you would have been to be out of the market at any time in the last X years because you would have missed out on significant stock market gains. The implication being, don’t be stupid now and exit their fund or you will miss out on future gains.

They conveniently forget they should also consider what the effect was of missing the worst 30 Days in the stock market. That would give some balance to their argument but then they would not win their argument. It would result in massive redemptions from their funds under management. They know this must be stopped at all cost mostly to you and your nest egg.

Here is some objective analysis by Javier Estrada who investigated how being out of the market for the best and worst 10, 20 and 100 days across 15 countries affected long term returns from 1900 to 2006. Download his Paper Black Swans and Market Timing: How Not to Generate Alpha fro more information.

Mean Annual Compound Returns

In Summary he found:

  • Missing the 10, 20 or 100 Best Days did indeed reduce the buy and hold final amount on average across all 15 countries by -51%, -71% and –98%.
  • But missing the 10,20 or 100 worst days actually significantly increased the buy and hold final amounts on average across 15 countries by +150%, +373% and +26,532% (that is not a typo!)

What he is really saying is a very small number of days has a big impact on your investment results. However you have very little chance of picking the best or the worst days to enter of exit the market.

Note market timing is not trying to do this when investing for the long term. But this is what Fund Managers promote as the danger with market timing. Once again the definition has been high-jacked and marketed in such a way as to scare you into leaving your money with them, no matter how badly they manage it. Market Timing is not about trying to pick the best or the worst days. It is about entering the market when there is a probability that it will rise as it did in March 2003 for example.

Here’s a market timing question. Would you invest your nest egg in the stock market right now? If not you are practicing market timing but the rational kind. Like almost everyone except the financial industry you can see you’d be crazy to take the risk right now with your retirement money (I’m not talking about someone with 10, 20, 30 years left to retire, but about you a Baby Boomer in retirement).

What you may not be aware of is your fund managers are most likely using your nest egg funds to pay for these expensive advertisements on TV. You don’t see it as a cost because it is an “administration expense” and is deducted before they post the unit prices in your account. Adding relatively small TV advertising costs to huge losses in a fund is relatively easy. If you don’t believe me write to them and ask them who pays for the advertisements.

This type of biased advertising is designed to do only one thing. Scare you into leaving your money with them and forgetting about the massive losses they have accumulated by not protecting your money. Unfortunately for you, they would be far better placed writing to you to apologise for their poor management and humbly advising you that to redeem your money right now with such large losses will be worse than staying in and waiting for the markets to recover. At least they might redeem themselves a little in your eyes and spend far less of your money writing to you.

If you are invested with a fund manager doing this sort of TV advertising you should write to them and tell them to stop doing it. It may even be contravening “truth in advertising” laws. You should also ask them if the advertisements are being paid for with your retirement funds.

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