When my brother watches hockey games and a player rips past a clueless defender with the puck, my brother yells out, “That guy completely undressed the defender”.

It might come out with an expletive or two if he’s emotional about the game.  The idea, of course, is that one player was completely outclassed by another—and that the outclassed player was metaphorically stripped of his own clothes, right on the ice.

If you walk into a financial institution looking to invest your money, you’re the one who’s probably going to be undressed.

You’ll be sold investment products that will benefit the bank or financial institutions first, with you a distant second.  The most efficient stock market investment products of all (index funds) won’t be part of your investment discussion, unless you bring them up.  And the financial institution will work hard to steer you away from products that don’t help the bank or the firm. 

You might even have a really nice advisor.  But their limited financial training leaves you vulnerable in the end.  You see, choosing financial investment products is a limited niche. 

When you get a University degree in Finance, Economics, or Business, you learn nothing about individual investment products.  And most of the people at your financial institution are just salespeople.  They’re usually nice, but unknowledgeable—despite how they might come across.   And those advisors who are knowledgeable have their hands tied—to make money for the banks.

Our hero, Harry, of course, recognizes this.  He understands that true, impartial experts recommend index funds over actively managed mutual funds (what the bank will try selling you).    

But they’re salespeople.  If you want to know the difference between an actively managed mutual fund and an index fund, click here

Harry is smart enough to avoid actively managed funds.

And he put a lump sum into an investment account of indexes on August, 2008.  It couldn’t have been a worse time, but that’s easy to say, in retrospect.  The markets, from August, 2008, fell dramatically from that date; they then recovered most of their losses within 15 months, and recently, they’ve started to fall again. 

So, do you need a professional to help you—especially when the markets are so volatile?  Harry says, “No”, and he wants to explode some of the myths that your financial planner might try “undressing” you with.  Last time, he tackled the mutual funds from The Royal Bank of Canada.

But to be fair, this time he wants to demonize the CIBC branch of mutual funds (Harry really doesn’t like these guys, does he?) 

Myth #1

CIBC mutual fund managers have their pulse on the economy, and if markets are about to fall, they can anticipate this, selling many of the stocks in their mutual funds to protect the investors from the market collapse.  If they sell ahead of time, the investors don’t lose their money.

Let’s see if that’s true.  We’ll look at their Canadian equity fund.    This is a plain vanilla fund, where the manager buys stocks on the Canadian stock market exchange.

If you had invested $10,000 in the CIBC Canadian equity fund (in August, 2008) what would it be worth today?  Oh—my goodness!  You would be down 19%.  Your initial $10,000 invested in August, 2008, would be worth $8,107

If a $260,000 account like Harry’s had been invested in this fund, it would be down nearly $50,000.

So much for them being able to protect your money during volatile markets.

The mutual fund manager tries to maximize profits.  But it’s tough because there’s a 2.29% annual fee that they have to overcome.  And that 2.29% fee is just the tip of the iceberg.  …more info

Keep in mind; the person actually running this fund (or any fund) isn’t a salesperson.  There’s a certified professional team behind all actively managed funds.  And those people are really trying to do the best they can with the money they have.  Sadly, though, most of those people have human weaknesses that make them poor investors. … read more

Which brings us to Myth #2

You don’t want to invest in index funds.  They include good stocks, sure, but they also include lousy stocks, because when you buy an index fund, no professional is choosing which stocks to buy for the fund.  However, our “well-selected” stocks will ensure stronger performances for you.

 Let’s see if that’s true.

Sometimes, that can be true, as you’ll see by this chart.  An investment in CIBC’s International stock market fund would have made roughly 2% from August, 2008 to May, 2010.  You can see that it beat an international stock market index quite handily here:  … more info

But over the long term, the odds are that it won’t. 

Let’s look at CIBC’s American stock mutual fund and see if they were able to weather the financial storm from August, 2008 to May, 2010. … more info

Goodness, this team must be lowering their heads in shame.  They couldn’t protect their investors at all.  Their fund dropped 15% during this time period.  A $10,000 investment in this fund in August, 2008, would be worth just $8,580 today. 

Myth #3

As your advisor, I can put my pulse on the economy and determine whether you should be invested in stocks or bonds, based on economic activity.  I can also figure out whether you’re better off putting your money into the Canadian market, the American market, the Asian market or the bond market.

If an advisor tells you this, “RUN!”  They can do no such thing.

As salespeople, their jobs are to sell.  The smartest people (in this capacity) who work for the financial service industry are the people running the mutual funds, not the people selling them.

Because our hero Harry wanted a balanced portfolio of stocks and bonds, he created one out of indexes.  And his performance has beaten all of the balanced actively managed mutual funds offered by the Big 5 Canadian banks.

How much better off is Harry? 

Well, if Harry had split roughly $260,000 between 5 balanced mutual funds offered by TD Bank, CIBC, Bank of Montreal, Royal Bank of Canada and the National Bank of Canada, Harry would be roughly $20,000 poorer today.

Simply put, Harry’s account is currently profitable, compared to where it was in August, 2008.

You can’t say the same for any of the mentioned Canadian bank balanced mutual funds.  No matter how much the active fund managers with the Big 5 Canadian banks tried, they couldn’t beat Harry’s low fee, simple account of stock and bond indexes.

You can have a look at Harry’s actual account below: (Currency is Canadian dollars)




Current Price

Market Value





ISHARES D/J CAN SLCT DIV IDX –High dividend yield  Canadian stock index






ISHARES DEX –Canadian bond market index






ISHARES DEX SHORT BD IDX FD –Short term Canadian bond market index






ISHARES MSCI EAFE INDEX FUND –International stock market index






ISHARES S&P 500 HEG CAD FD –U.S. stock market index






ISHARES S&P/TSX CP CMP IDX –Canadian stock market index









He has roughly 57% in bonds, which is a bit of a change.  The recently dropping stock market has forced his bonds up, and his stocks down.  So today, Harry sold off half of his XBB Canadian bond holding to purchase more of the cheap, International stock market index XIN.

Harry isn’t doing anything technical or tough; he’s just rebalancing his account.

If you’re wondering about what Harry holds, they’re called exchange traded index funds, or ETFs for short.  For a good explanation of the differences between regular stock market indexes and ETFs, check this post, written by blogger, Financial Cents.

No luxury of adding fresh money

Because Harry is retired, he doesn’t have the luxury of adding fresh money to his account when the stock market is cheap.  In fact, he has withdrawn money from his account to pay some bills for an airplane he’s restoring.  If you were young, and working, your investment account should have performed much better than Harry’s account since August, 2008 because you could have taken advantage of some cheap stock market purchases in 2008/2009.  Harry couldn’t do that, but he has still done well.

You can actually see his account’s performance and withdrawals below:

Monthly Performance


Market Value

Net Invested


May 2009




June 2009




July 2009




August 2009




September 2009




October 2009




November 2009




December 2009




January 2010




February 2010




March 2010




April 2010




Quarterly Performance


Market Value

Net Invested


2nd Quarter ’09




3rd Quarter ’09




4th Quarter ’09




1st Quarter ’10




Yearly Performance


Market Value

Net Invested










2010 (YTD)




The amount invested column above shows that in May, 2009, when the markets were near their all-time low, Harry’s account was only down 8.1%  You can also see that in March, 2010, Harry removed $10,000 from this account to add to his TFSA account (TFSA account not shown here)  The above tracking is courtesy of the brokerage Harry uses QTrade  and the performance charts above are as of May 1, 2010.

Clearly, Harry didn’t want to get undressed by the financial service machine that takes from investors, performs poorly relative to indexed alternatives, and then feeds itself exceptional profits at other peoples’ expense.

And Harry wants to show you that you don’t have to be a victim either.