Tuesday, November 25, 2014

The Value of Simple

Many good investing books advocate simple, index-based investing strategies. No doubt some readers are lulled into thinking that these strategies are just too simple. However, real-world complications find their way into even the simplest of strategies. John Robertson makes a strong case for investing simplicity in his new book, The Value of Simple. (The giveaway for this book is now over.)

The main thing that separates this book from other investing books is that Robertson goes into detail for how to invest using each of three different financial institutions and types of funds: Tangerine funds, e-Series funds at TD Direct Investing, and Exchange-Traded Funds (ETFs) through Questrade. He judges these to be good trade-offs between cost and simplicity. He goes through the important practical steps of using each type of account using a few screen-shots.

Most investing books back away from the details Robertson takes on. This is mainly because these details are untidy and make the whole topic of investing more complex. But this is a big part of Robertson’s point. You need to start with a simple strategy, because by the time you encounter the nitty-gritty of opening accounts and splitting your money across TFSAs, RRSPs, and other accounts, you’ll be glad you started off with a base strategy that is as simple as possible.

Other topics covered in this book include the importance of keeping fees low, the power of compounding (explained using non-threatening bunnies), passive investing, risk and realistic return expectations, taxes, asset allocation, rebalancing, and much more.

A good point Robertson makes concerning financial advisors is that we tend to think they are valuable for choosing investments, but “this is where they add the least amount of value. Many people would be better served by discussing spending, saving, emergency plans, and charting a long-term course.”

Another interesting point concerns thinking of mortgage payments as a form of fixed-income investment. “It doesn't really make much sense to hold large amounts of bonds or GICs to earn some interest when you are paying more on a mortgage.”

The author is “not fond of” the strategy to buy “dividend-paying stocks and ‘live off the dividends.’” He finds that this generally can be too conservative because “dividends are just one component of total return.” But it can also be “too risky if there’s a concentration in a small selection of companies paying high (and unsustainable) dividends.”

There’s not much to criticize in this book. In an example of the power of getting started early with investing, the author imagines someone who saves $10,000 per year for 35 years. Of course, this just isn’t realistic for most people. Most are able to save more later in life because of inflation and because their income rises faster than inflation. However, if shading the truth here helps to convince more young people to start saving early, perhaps it’s not such a bad thing.

Overall, this book covers the topics a do-it-yourself investor needs to know and avoids the things they don’t need to know like how to pick individual stocks or how to time the market. I highly recommend this book to anyone who feels confused about how to invest. I also recommend it to anyone who thinks stock-picking and market timing are good ideas.

The book giveaway described below is now over:

Just send an email with the following things:
– Subject: Book Giveaway
– Answer to the following skill-testing question: (6 x 9) + 2 – 6
– Use the email address listed at the “Contact” link (For those who are reading my feed, you’ll have to click through to my web site to get the email address.)
– Indicate if you wish to be excluded from either the paper book draw or the e-book draw (the default is in for both draws)

Another benefit of going to my site when reading a post is to see the comments other readers leave on that post. All entries received before noon Eastern Time on Sunday, November 30th will be considered for the draw. I will make a random draw without favouring any particular entries. I reserve the right to eliminate entries that I judge to be outside the spirit of the contest. Good luck!

1 comment:

  1. I read about this book somewhere else and was hoping somebody will do a giveaway!

    I would love to have either of the two versions. Thanks.