For who is the “Buy and Hold” message directed? The financial industry, particularly in the mutual fund space, has spent millions upon millions of dollars spreading this advertising message. And, in truth, that is all it is ~ an ongoing advertising campaign. How can you tell? Look at what they do vs. what they say.

Go to the Morningstar website: www.morningstar.com. Let’s examine Templeton Developing Markets A ~ TEDMX and Fidelity Contrafund ~ FCNTX. Look up any mutual fund you like. Go to the first page. Follow the headers beginning with Yield. To the right you will see Total Mkt Val, Total Assets, Load, Expenses and Turnover. Turnover is the statistic we want to study. In this example, the turnover rate is 46.8% for TEDMX and 58% for FCNTX.

What is portfolio turnover? It is a measure of the purchase and sale of stocks in a fund’s portfolio over a twelve month period. So, a turnover of 100% would mean that the entire portfolio was sold and positions replaced over the last year. In the case of TEDMX just under half was sold and just over half was sold in FCNTX. Neither seems to be practicing “buy and hold.”

photo © 2007 Paul Downey | more info (via: Wylio)
If you care to research the subject, you will discover any number of experts touting one side of the debate or the other. As for me the actions of the portfolio managers speak volumes. What it tells me is that “Stay the Course,” “Stock for the Long Run,” “It’s Not Timing the Market but Time in the Market That Matters” are but clever and brilliant marketing slogans. The message to the individual investor is simply that this is too complicated and you would be foolish to try it on your own. Buy and hold is for you and not for us.

Do not forget, for the financial industry as a whole, this is a billion dollar business. They have a vested interest in keeping your assets under their roof. Yet, you only need look to the explosive growth of the Exchange Traded Fund segment of the market to realize that consumer awareness is on the rise. The mutual fund industry is clinging to one of the last bastions left, the 401k plan. While many 401k plans are instituting a self directed brokerage option for their plan participants in compliance with the Pension Protection Act of 2006, there are those that are holding out or limiting the investment options via this channel. They believe this is in your best interest.

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