Tuesday, August 25, 2020

Count on Yourself

Author and personal finance columnist Alison Griffiths wrote the book Count on Yourself aimed at beginning investors to teach them do-it-yourself index investing.  She takes a gentle approach starting with interesting stories and working in financial material slowly.  This approach works well initially, but the final range of recommendations allows so many possibilities that many readers will remain confused about what to do with their investments.  Published in 2012, much of the detailed information about discount brokerages and index ETFs and mutual funds is now out of date.

A strong part of the book is the explanation of why low-cost index investing is better than the expensive mutual funds most Canadians own.  She makes this case with stories and case studies presented in a way that is accessible to the many Canadians who know little about investing.  Today, you could simplify the recommendations for the novice investor down to just choosing one of Vanguard Canada’s asset allocation ETFs.

Griffiths shows that she gets people’s aversion to figuring out the many financial aspects of their lives: “Have you ever compared extended medical/dental plan rates among the various insurers?  I have.  It takes days and brings on a sudden urge to clean the basement.”  She recommends trimming the list of financial things in our lives, including credit card balance insurance, retail credit cards, and extended warranties.

Much of the first half of the book is aimed at women, including some musing about “if all the world’s financial affairs had been turned over to women.”  In my limited experience, many male leaders are self-centered and ruthless, and when a woman rises to the top, she’s not much different.

One piece of bizarre advice is if you have a high tolerance for risk, “go ahead and be a day trader, dabble in foreign exchange, or play the options market.”  It’s one thing to increase your expected return with higher-risk assets, like more stocks or small-cap value stocks, but it makes no sense to do things that reduce your expected return.

Another piece of advice that makes little sense to me is to avoid owning stocks in a TFSA.  For anyone using a TFSA for short- or medium-term savings, this makes some sense.  However, some investors, like myself, use TFSAs for long-term savings.  There’s nothing wrong with owning stocks in a TFSA in this situation.

To reduce the numbers of ETF choices, Griffiths stated the criteria she used for selection.  I liked the bond ETF criteria: avoid high yield bonds, longer-term bonds, and MERs over 0.5%.  She says that “bonds have a specific job to do in a passive portfolio, and that is to provide income safety.”

One piece of advice you don’t see many places is to allow small monthly contributions to build up for a few months before investing to reduce commission costs.  For investors who pay commissions when buying ETFs, this is sensible.  The same would apply for selling investments after retirement.

Another curious piece of advice “for the math challenged” who “have trouble working out percentages”: “call up your brokerage … and tell them how much you have to invest and what your breakdown (asset allocation) is, and they’ll tell you how many units you should buy.”

In conclusion, parts of this book may be useful for novice investors who need to be eased into understanding personal finance, investing, and the rationale for avoiding expensive mutual funds.  However, the detailed recommendations are too complex and now out of date for this type of reader.

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