Blogs & Comment

Marketing tools?

Online financial calculators can be informative but sometimes there may be a fine line between information and marketing. Thats one caveat that has come to mind while reviewingthe various calculators and preparing summaries in Online Calculators(Feb. 12, 2009) and RRSP Calculators(Feb. 26, 2009).
Take the Stay Investedcalculator. It demonstrates the value of the buy-and-hold approach by showing the impact of missing some of the best-performing months over a 30-year period (from 1969-1999, using the TSE Total Return Index).
According to the calculator, missing just six of the best months cut returns nearly in half. A $10,000 investment yielded $233,294 at the end of 30 years under buy and hold versus $118,494 for the investor who missed the six best months.
There may be something to be said for buy and hold, but some people would say the Stay Invested calculator is more a marketing tool, a way to keep clients invested so advisors can continue to collect annual management fees of 2% to 3%.
For example,Danielle Park argues in her book Juggling Dynamitethat it is somewhat disingenuous to look at only missing the best performing months: if the calculator looked at missing some of the worse-performing months, it would make the market-timing approach look relatively better.There would seem to be betterways to argue the case for either time in the market or timing the market.