Investing 101

There is value in advice

Financial advisors served clients well in market downturn and recovery

At the depth of the historic market decline that ended on March 9 of 2009, investors were questioning the very idea of equity investing. The 2008 credit market collapse and the economic difficulties that followed turned the investment world on its head. However, as a result of unprecedented economic stimulus by central banks and governments, credit markets found their footing. Eventually, so did stock markets. And what followed was a substantial rebound in stock prices.

Financial advisors played a key role in helping clients stay invested during these recovery months. As a result, investors are heading into 2010 in a better position than if they had moved to cash equivalents. Here is a quick example to illustrate the value of staying invested in the recent downturn, using actual mutual fund performance and possible investor responses.

In the first scenario, the investor started with $100,000 at September 30, 2008, just as the market was starting the serious part of the downturn. The investor held Mackenzie Cundill Value Fund, Series C until the end of February, a time when markets had fallen dramatically. The fund value at the end of February was $74,967. At this point, the investor moved to a money market fund. The value at the end of October 2009 would have been $75,022

Scenario 1 – Switch to money market

Start: $100,000 at September 30, 2008
Fund: Mackenzie Cundill Value Fund, Series C
Value at February 28, 2009: $74,967
Emotion: “I can’t watch it go down anymore.”
Decision: Switch to Mackenzie Sentinel Money Market Fund
Value at October 30, 2009: $75,022

In the second scenario, the investor, with the help of a financial advisor, stays invested in Mackenzie Cundill Value Fund, Series C. From the near-depths of the market downturn, the equity fund recovered dramatically. By October 30, 2009, the portfolio was back up to $96,949.

Scenario 2 – Stay invested

With the same situation as Scenario 1, the investor decides to stay invested in Mackenzie Cundill Value Fund.
Start: $100,000 at September 30, 2008
Fund: Mackenzie Cundill Value Fund, Series C
Value at February 28, 2009: $74,967
Emotion: “I can’t watch it go down anymore.”
Advisor input: “When the recovery happens, equities will bounce back better than cash equivalents. Stay invested.”
Decision: Stay invested in Cundill Value Fund
Value at October 30, 2009: $96,949

Conclusion: It is very difficult to stay invested in an equity mutual fund when markets are declining. However, market recoveries are often very swift. With the help of financial advisors, many investors were able to participate in the subsequent recovery.

Performance as of November 30, 2009

Mackenzie Cundill Value Fund, Series C - 1 yr. 18.4%, 3 yr. -5.4%, 5 yr. 0.7%, 10 yr. 6.0%
Mackenzie Sentinel Money Market Fund - 1 yr. 0.2%, 3 yr. 1.9%, 5 yr. 2.0%, 10 yr. 2.2%