Enough Bull: How to Retire well without the stock market, mutual funds, or even an investment advisor is David Trahair’s follow-up to Smoke and Mirrors (see series of posts on Smoke and Mirrors Myths). As you probably surmised from the title, the author recommends readers to get off the stock market roller coaster altogether and take refuge in the safety afforded by GICs. Mr. Trahair suggests a six-point action plan for investors stung by the stock market declines of 2008:
- Avoid Personal Financial Disasters.
- You Don’t Need the Stock Market or Mutual Funds.
- Buy a Home and Pay Off the Mortgage.
- Reducing Expenses Doesn’t Have to Be Painful.
- Forget RRSPs Until Your Debt is Paid Off.
- Ask Yourself if You Really Need an Investment Advisor.
It is hard to quarrel with most of these suggestions — after all, paying down the mortgage, investing conservatively, lowering investing costs, avoiding leverage etc. are staple topics on this blog. However, in making the case for investing exclusively in GICs, Mr. Trahair repeats the mistakes in his earlier book and cherry picks the numbers to show equity investing in a poor light. He looks at returns in carefully selected time periods and cites the performance of Apple Inc. (AAPL) between December 2007 and January 2009 during which the share price fell 55%. Funny he should mention AAPL because in the prior 2 years, the stock price increased 160%. The stock is also up 80% since January 2009 price cited in the book. He also repeats the error of completely ignoring the return from stocks in the form of dividends. Mr. Trahair says that in the 25-year period ending in 2008, the TSX Composite index returned 5.2%, which is simply incorrect. Assuming reinvested dividends, the TSX Composite actually returned 7.85%.
It is true that it is hard for investors to succeed while paying sky-high mutual fund fees. It is also not very easy or pleasant to watch stocks plunge dramatically. But the rational response is to own low-cost alternatives such as index mutual funds or broad-market ETFs and to allocate a healthy portion to fixed income — not give up on the stock market altogether.
The softcover book is published by Wiley and lists for $19.95. You can read the book’s introduction on Dravid Trahair’s website.