“If you are paying more in management expenses and commissions than you get in dividends and capital gains over a period of three to five years, consider changing portfolio mix or managers who created the mix.”Basically, this means “if your portfolio goes down over three to five years, make a change.” This is bad advice in a couple of different ways:
1. During most three to five-year periods, this is a very low standard. If the markets rise by 5% per year over three years and your investment fees consume this entire gain and more, you’re paying wildly excessive fees.
2. Most times that stock markets have a serious correction, the three-year return will be poor. Allentuck’s advice has you making a change when markets are down. Investors tend to seek safer investments when stock markets are down. This advice drives buy-high and sell-low behaviour which is devastating to long-term returns.
Investors would be much better off to minimize fees during good times and bad. They also need to choose an asset allocation with volatility they can stomach and then stick with it through market drops.