Posted by Tim Stobbs on November 19, 2009
David Trahair is back again. The author of Smoke and Mirrors is back with a new book called Enough Bull that suggests we should all tell the stock market to go to hell and put all of our savings into GIC’s.
To be honest I can understand the feeling that drives this book. By investing in just GIC’s you may not get a huge return, but you will be guaranteed your principle back which given the pounding we all took in 2008 sounds damn good once in a while. Yet the book isn’t strictly about avoiding the stock market. Instead he lays out a six point plan which includes:
- Avoid Financial Disasters – Where he points out you should never borrow to invest, never buy something you don’t understand and if it sounds too good to be true it likely is.
- You Don’t Need the Stock Market or Mutual Funds – The pro-GIC part of the book.
- Buy a Home and Pay Off the Mortgage – Actually it’s fairly sound advice for most people.
- Reducing Expenses Don’t Have to Be Painful – Go after the big stuff of interest on your debt and income tax.
- Forget RRSP’s Until the Mortgage is Paid Off - If you follow the GIC method this makes more sense.
- Ask Yourself if You Really Need an Investment Adviser – Again if you use just GIC’s this is obvious.
The one paragraph I like the most in this book was one where he stated you don’t have to follow everything he lays out in the book. He points out use what you want in the six point plan and ignore the rest. Good thing he said that or I might be a bit pissed off. I do get his point of view, but I don’t agree with all of it.
Here’s my six point plan which I just corrected the points in his that I don’t agree with:
- Avoid Financial Disaster – Yes never buy something you don’t understand and if it sound too good run away, don’t walk. Yet borrowing to invest does make sense at some points and for some people. I would agree that you should likely limit your exposure to perhaps 10 to 20% of your portfolio depending on your own comfort level.
- You Need Much Less Stocks Than You Think in Retirement – People often grossly overestimate their ability to recover from a down turn in the market once you are retired. Recall you will likely have no other income source so it pays to be way more conservative with it. I typically would suggest that you set up your fixed portion of your portfolio to cover all of your basic expenses so you could have a 70 to 85% in fixed income with the balance in stocks to provide some inflation coverage.
- Buy a Home and Pay off the Mortgage – if it makes sense in your local market. If you don’t plan to retire there, then consider just saving up cash to buy a home elsewhere.
- Reducing Expenses Don’t Have to Be Painful – Yes hit up the big things first: interest on your debt and taxes. Then cut back on areas you don’t care about (power bill, water usage) to boost spending on those things you love. Also consider free or low cost alternatives. The idea isn’t to cheap, but rather frugal.
- Don’t Panic Over Maxing Out Your RRSP’s – You don’t have to do this early in your career. Focusing on student debt and credit cards makes a hell of a lot more sense. When you income rises up to a higher tax level then start using the RRSP’s to cut back the government’s hand in your pocket.
- Use an Investment Adviser if You Want To – You don’t have to use one for GIC’s or if you are using some index ETF’s. If you do use one make sure not to give them everything, that way you will limit the damage if they mess up.
This book was useful for me to read for one little tiny piece of information on CPP. If your spouse dies you get their CPP pension, I’ve always know that. I didn’t realize that you can only get up the maximum pension amount for one person. So if both of you are getting the maximum pension already and one of you dies then you lose all of the second pension.
So overall it was a short read and I learned something new. So it is worth reading the book from your library. You may not agree with all of it, but it does make you think.