My Favourite Takeaways – Guide to What’s Good, Bad and Downright Awful in Canadian Investments Today – Part 1 of 2
I’ve been meaning to post a review of Rob Carrick’s Guide to What’s Good, Bad and Downright Awful in Canadian Investments Today for many months now. After meeting Rob at dinner the other week, and hearing about his new book, I figured it was time to get my butt in gear and comment on his last book – before the new one takes all the attention. Carrick is considered one of Canada’s most respected, not to mention, well-known financial experts. Thanks to former blogger The Wealthy Canadian, I got a push to read Rob’s book.
After beginning Rob’s Guide, to be honest, I wasn’t sure what to make of this read. Was it a how-to-book for the would-be DIY investor? Was a tome to vent about our high-fee mutual fund industry in Canada? Actually, it’s a bit of both and more. Throw in a small encyclopedia of financial terms and personal finance best practices and you’ve got a great 200 page resource for any Canadian investor. Not bad for a $15 investment.
I’ve got lots to say about Rob’s Guide, so this is only Part 1 of 2 blogposts about this book. Regarding the first few chapters, here are some of my favourite takeaways from the Guide to What’s Good, Bad and Downright Awful in Canadian Investments Today.
Chapter 1 – Getting You Off To A Good Start
“Rule one of being a rookie investor is that you will make mistakes.” Very true Rob. Even experienced investors make mistakes. I don’t consider myself an experienced investor yet and I confess I make a bunch of them for sure. So, instead of pretending investors can be perfect Carrick offers some suggestions in this chapter to help folks out, what to avoid, what to do, which makes for a great actionable list for rookies and veterans alike:
- Avoid buying hot stocks and mutual funds – don’t chase performance.
- Diversify – Rob says that means “bonds and cash are lifeboats”.
- Avoid buying things you don’t understand.
- Avoid selling too soon or too late – although Rob admits this is easier said than done…totally agree.
- Avoid buying high and selling low – Rob says “find the right mix of stocks and bonds for your portfolio and stick to it through good and bad times”.
- Don’t assume guaranteed investment certificates (GICs) are risk-free. Rob says “no investment is risk-free”.
- Don’t mistake luck in stock trading for skill. Rob says “Learning stock trading is a bit like taking up a sport in a serious way.”
Chapter 2 – Mutual Funds
About mutual funds Rob says “an awful lot of people have their financial aspirations riding on them.” Not that Rob is dead against mutual funds, he just wants folks to know what they are getting themselves into. As a former investor in mutual funds, I agree, buyer always beware. You should beware of mutual funds as well! Some mutual funds kill (returns to their investors that is) because of the fees they charge. As an expert, Rob knows this far more than I do. He’s been covering the financial industry for about two decades now and he doesn’t like what he sees when it comes to mutual funds. Carrick knows the mutual fund industry shenanigans and shares them in detail in this book under the sub-topics of:
- Making a big deal about management fees.
- Blowing smoke about bad investing results.
- Creating gazillions of versions of the same funds.
On this last point, Carrick reminds us that “mutual funds are products, and, of course, product innovation and development are inevitable and, indeed, desirable. Variety is great, but there’s too much of it in fundland.” Instead of beating up the entire industry, Carrick does offer some great finds in “fundland” but you’ll have to buy his book to find out which ones.
Chapter 3 – Navigating The Stock Market
Rob writes “The stock market is where you go in order to make higher returns that you can get from virtually risk-free bonds and guaranteed investment certificates.” True, but this is why asset allocation is what really matters in a portfolio. You need to balance risk for reward. This is why Carrick advocates “intelligent buy-and-hold investing” for most of us. This means, determine the correct mix of investments to suit your needs and risk tolerance, and then maintain this mix through all market ups and downs – only changing the mix through rebalancing when the portfolio gets off-centre. If you’re not comfortable with this on your own, there is absolutely nothing wrong with getting a financial advisor to help you out. In fact, he encourages it by saying advisors can be “great simplifiers” for you.
Within this chapter, speaking of simplification, for investors that might be new to exchange-traded funds (ETFs) Carrick breaks down their benefits succinctly:
- Low fees – a fraction of what many mutual funds cost.
- Variety – lots of choice to build a sound portfolio.
- Liquidity – buy them at any time the market is open.
- Transparency – holdings are readily seen on the company’s website.
- Diversification – some ETFs hold hundreds of stocks.
- Tax efficiency – replicating indexes they track can generate lower taxable capital-gains distributions.
- Accessibility – buy them in quantities you want.
Given ETFs are cheap to own, versatile and can have some excellent built-in diversification, Carrick provides some strong considerations in this space*: iShares CDN S&P/TSX 60 (XIU) and iShares CDN Bond (XBB) to name a few. (* These links take you to some of my previous articles about XIU and XBB, but many more options than iShares are listed in his book.) Rob also discusses where to look in the stock market for yields, through direct stock ownership. He suggests all the big Canadian banks for starters and companies like BCE and TransCanada.
Readers – have you read Rob Carrick’s Guide? I look forward to your feedback on my two-part series and Rob’s book.