Buy and Hold - Conflict of Interest Advice
There is not question when I look at the garbage and commissions my financial advisors got, well, they were in an enormous conflict of interest. The only thing I have left from my last advisor is down over 30% and I have been locked in for 8 years. I later found out this "investment" had a commission about double the average commission.
Mish has an excellent post on buy and sell and cost averaging, which is what most people do. He found that you actually did better in CDs going back 50 years and only .2% better going back to the start of the S&P.
If you looked at this buy and hold advice for people in my age group, it has been a disaster for most. Certainly my own earlier experience was a disaster.
How can you trust the advice of an advisor if they do not get paid if you sit on cash?
One of my experiences when I worked in banks I found utterly disgusting. First we were instructed to sell as many Canada Savings Bonds as we could and we were given a whole bunch of good reasons why. The bank collected the commissions from the sales. A few months later we were instructed to try and get customers to cash in their bonds and go into guaranteed investment certificates. The banks made no money with the money sitting in bonds.
I like what Mish had to say on the subject:
Why Is Bad Advice So Common?
Clearly, stay the course is bad advice. So why is it so common? A personal anecdote might help explain things: In January of this year, an investment advisor from Wachovia Securities called me up and stated "Mish, I am sitting on millions because I see nothing I like". I told the person I did not like much either and that Sitka Pacific was heavily in cash and or hedged. His response was "Well, I do not get paid anything if my clients are sitting in cash".
I called up a rep at Merrill Lynch and he said the same thing, that reps for Merrill Lynch do not get paid if their clients are sitting in cash.
Massive Conflict of Interest
Notice the massive conflict of interest possibilities. Reps for various broker dealers have a vested interest in keeping clients 100% invested 100% of the time, even if they know it is wrong. And so it is every recession, bad advice permeates the airwaves and internet "Stay The Course".