A Helping Hand for Canadian Investors

Last October, a few months before launching this blog, I became a member of the Investors-Aid Co-operative of Canada. Based in Vancouver, the Co-op is a national consumer organization whose mission is “to provide members education, publications, online tools, and discounts that help ensure low investment costs and fair returns.” I joined because I wanted to support an organization that’s working hard to show Canadians about better ways to manage their investments.

The group’s founder and executive director, Garth Rustand, knows all about the plight of investors in this country: he spent 15 years as a broker with CIBC Wood Gundy. Convinced that the industry was not serving its clients, he left that job in 2002 and launched the Co-op in 2008. (Read these stories in  The Globe and Mail and The Vancouver Sun to learn more.) I got to know Garth better when I interviewed him for an article I wrote in More magazine last spring about why I think David Bach, author of The Automatic Millionaire, is full of crap.

I get a lot of e-mails from readers who are thinking about ditching their high-priced mutual funds and need some help guidance. A membership in the Co-op would be a great place to get it. Members have access to consumer reports, online consultation with the Co-op’s experts, suggested index portfolios, and a dispute support service for aggrieved investors. Those confused about how to send their current advisor packing will find the Co-op’s Account Transfer Checklist helpful, while mutual fund investors will also find online tools such as the Portfolio Upgrade Report Card enlightening.

Best of all, a lifetime membership is just $45,which is a screaming bargain. For $78, you get the membership plus a pair of books authored by Rustand: the 214-page Investors-Aid Guide to Protecting Investment Returns, and the recently updated Investor Protection Workbook. A Smart Investor membership ($115) includes special discounts with brokerages Questrade and QTrade, and a transfer credit for investors who move to Phillips Hager & North and RBC.

If you decide to join, I would definitely recommend getting the books. In the Investor Protection Workbook, Rustand begins by explaining why “investing is a consumer’s nightmare.” He shows why trying to time the market and chase performance are dangerous, and why indexing usually beats active management over the long term. He then helps investors determine their risk tolerance and shows how that’s related to choosing the right asset allocation. Finally, he offers several low-cost model portfolios designed for capital preservation, income, balanced investing and aggressive growth.

I have just one issue with the advice in the workbook. I appreciate that many of the Co-op’s members are seniors looking for safety and income, and that most are inexperienced investors. But in a section is called “High Risk = Low Returns,” Rustand argues that asset classes “such as Asian, emerging markets, or precious metals tend to have low long-term returns compared with less risky alternatives.” This simply isn’t true — indeed, it goes against the fundamental tenet of investing that risk and reward are intimately related. (Emerging markets are certainly volatile, but they have delivered annualized returns over 12% since 1988, compared with less than 9% for Canadian equities.) The book advises investors to completely avoid European and Asian markets — developed and emerging — as well as US small caps. While these investments may be inappropriate for some investors, it’s misleading to suggest that they deliver poor returns.

One other quibble is that the workbook uses the outdated term “index unit” rather than “exchange-traded fund.” This seems likely to confuse inexperienced investors, many of whom will have heard about ETFs in the media and may be seeking more information about them.

Those reservations aside, the Investor Protection Workbook is filled with prudent and practical advice for investors who have decided to take control of their own finances. Garth Rustand has generously provided me with a copy, and I will send the book to one reader who posts a comment below, or who Tweets this post.