Monday, June 30, 2008

The Lazy Investor

Derek Foster who claims to be Canada’s youngest retiree wrote an interesting book called The Lazy Investor. Before I read the book, I thought the “lazy” part referred to the effort required to handle investments, but it actually refers to being lazy by quitting your job once your investments produce enough income.

What sets this book apart from most other investment books is that he recommends specific investments and gives detailed instructions on how open accounts and acquire shares as cheaply as possible.

I tend to agree with most of his general advice: minimize fees, buy stocks rather than bonds, and minimize personal spending in areas that aren’t improving your life. I don’t think it’s necessary to focus exclusively on dividend-paying stocks, but following Foster’s advice would be a big improvement over how the average person invests.

The book gives detailed advice on how to get started with very small amounts of money to invest without wasting too much of it on fees by using dividend reinvestment plans (DRIPs) and stock purchase plans (SPPs). This information is useful for beginning investors.

The second half of the book is about educating kids about money. He advocates buying dividend-paying stock to provide your children with an allowance and give them lessons on stock ownership at the same time. This is what I did with my own kids and it worked out quite well.

I can’t say that I agree with everything Foster says, but the book is well written and came at certain subjects from a fresh point of view, which making me think. It’s a quick read, and I recommend it for the beginning investor.

Other reviews of “The Lazy Investor”:

Canadian Dream: Free at 45
Million Dollar Journey

7 comments:

  1. I'd be interested in hearing more about how the dividends for allowance arrangement you set up for your kids... might be worth a post?

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  2. Thanks for the link! What were some of the things you didn't agree with (other than the exclusive focus on dividend paying stocks)?

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  3. MG: Good idea. I'll give it some thought.

    Mr. Cheap: One thing I didn't agree with is having kids work while going to school. Summer jobs, yes, but I couldn't have succeeded at school the way I did if I had to work part time. Between a demanding set of courses, appropriate amounts of physical activity, and some socializing to balance things out, there isn't time for a job. I understand that some students have no choice, but as a parent, I wouldn't plan for my children having part-time jobs while studying.

    On page 167, Foster says that he retired with less than half a million dollars while in his thirties (with a family). Most people take retirement to mean no income-generating activities. Foster clearly did not have enough money for this. He seems to be a driven person who switched to a new career where he is his own boss and has a very uneven income. This works well for him, but I'd hate to see other people give up their jobs with less than half a million dollars saved and hope to get by with no other income.

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  4. I thought his wife works?

    Anyway, I don't agree with stocks over bonds. In the last 25 years, yes, stocks did well, but the 20 years before that was pretty darn flat for stocks. A mix is the best approach imo.

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  5. Jim: I don't trust myself to try to time the market, and so I go with the strategy that has been best when averaged out over a very long time. Stocks have beat bonds (and stocks beat a mix of stocks and bonds). That's my reason for putting all the money I have that I won't need for at least 3 years in stocks.

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  6. Thanks for the link.

    Working while at school I found is completely related to the course load and degree type you have chosen to take. For some it might work out and for others not a hope.

    I used to have 40 hour weeks of just class and labs. So the idea of having a job during the year to me was laughable. At the same time I know people who only had 20 hours of class/lab time in a week so for them it made sense.

    Tim

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