Review: A Wealth of Common Sense

Ben Carlson is an investment writer who consistently has something important to say and expresses it in an engaging way.  Each morning I eagerly await his new post in my email, and he is one of the financial writers that I follow most closely on Twitter. I am in awe at the volume and quality of his writing.

Ben is Director of Institutional Asset Management at Ritholtz Wealth Management.  He has authored both the book reviewed here, A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan, and also Organizational Alpha: How to Add Value in Institutional Asset Management. Ben Carlson has been recognized in numerous awards, including being chosen in 2017 for Investment News 40 Under 40. You can read more about his background on his website.

Ben Carlson and Michael Batnick, also of Ritholz Wealth Management, have a weekly podcast that goes by the unusual title Animal Spirits.  The style of the podcast is very different from that of this book, and from his daily investment posts.  I may review the podcast at some future date. I suspect many came to Ben Carlson's considerable social presence after reading one of his books, but for me it was the opposite: I first started reading his blog and twitter posts. I decided it was finally time to seek out his best known book and to do a review on it.

Sometimes books have clever titles and sometimes they use descriptive titles.  This title is both. Essentially the book emphasizes the point that a clear investment plan, patience over the long term, and sound investment choices will yield good long term returns.  Success is largely dependent on making good common sense choices, and reigning in our emotions.

Essential Ideas

In the introduction to the book he summarizes simple and effective investment advice in the following points.

• Think and act for the long term.
• Ignore the noise.
• Buy low, sell high.
• Keep your emotions in check.
• Don't put all of your eggs in one basket.
• Stay the course.

As he emphasizes, the challenge is not so much to know those points, essentially common sense, but rather how to follow them.

In clear engaging language he outlines some of the traits listed below that you must reign in.  Here are the key messages, but read the book to get the details.

1. Looking to get rich in a hurry.
2. Not having a plan in place.
3. Going with the herd, instead of thinking for yourself.
4. Focusing exclusively on the short term.
5. Focusing only on those areas that are completely out of your control.
6. Taking the markets personally.
7. Not admitting your limitations.

He goes on to provide the flip side - what are the traits of a successful investor?

1. Emotional intelligence.
2. Patience.
3. Calm during times of stress.
4. The ability to say 'I don't know.'
5. Understand history.
6. Discipline.

What I Like

Ben Carlson devotes considerable attention to dealing with our emotional sides. As he says in the chapter on contrasting individual and institutional investors.

"One of the biggest mistakes investors make is letting their emotions get in the way of making intelligent investment decisions."

The following chapter is entirely devoted to the traits required to be a successful investor. That chapter opens with this great quote from Charlie Munger:

"If you can get good at destroying your own wrong ideas, that is a great gift."

-Charlie Munger

By clearly laying out the key traits of unsuccessful and successful investors, the author has set a superb foundation, with much of the book weaving the details around those points and the evidence for them.  I find that this approach works really well.

Ben Carlson appropriately stresses that in order to get more reward, indeed to get enough reward to overcome inflation, you need to take on some risk. I like the emphasis he places on market history as part of your investment education. That historical emphasis is also one of the Four Pillars of Investing of Dr. William J. Bernstein (see my review of that book here). Chapter 4 of A Wealth of Common Sense on market myths and history is one of my favourites. Many of these deal with timing attempts (read the book!), but I will share his fifth myth, which I think is something important that simplistic advice often overlooks: Myth 5 Stocks and bonds always move in different directions (see also Myth 7 which deals with risk inherent in stocks and bonds).

A Wealth of Common Sense is more scholarly (in a good way!) than many investment books.  Each chapter has an extensive list of resources to support the points made, ranging over books, articles and websites.  The author clearly reads widely and with an open mind, and that shines through in almost every page of this book.

In a book that pays attention to the evidence supporting ideas presented, sometimes it is easy to loose track of the key ideas.  Ben Carlson guards agains this by including for each chapter a Key Takeaways section, a few bulleted points that emphasize the key ideas of the chapter.

As would be expected,  Ben Carlson stresses the importance of development of an informed financial and investment plan.  A part of this is defining yourself as an investor (Chapter 5 has a section with this heading). As he says "...there is never going to be a one-size-fits-all investment philosophy for every person." He suggests that asking yourself questions such as does your investment philosophy match your personality and individual circumstances, and what constraints do the conditions of your life place on that philosophy.

The book contains many superb pithy quotations, such as the following in a section on The Benefits of Doing Nothing.

"Lethargy, bordering on sloth, should remain the cornerstone of an investment style."

–Warren Buffett

I find that the book concludes strongly, with the Exhibit approach in Chapter 6, including gems like the mutual fund graveyard and picking one active fund is hard, followed by Chapter 7 on asset allocation, and then Chapter 8 on a comprehensive investment plan.  Chapter 7 provides a solid foundation in evidence, history and principles guiding an appropriate asset allocation for your own personal situation. Chapter 8 includes coverage of lifecycle investing, and the different situations for investors at different stages in life.

The penultimate chapter looks at the key question of if you should seek professional advice, and how to interact with your financial advisor. His key takeaways for this chapter include advice such as "look for self-awareness and humility, not certainty or guarantees" and "outsourcing to a financial advisor is intelligent behaviour if you don't have the time, expertise, or emotional control to implement an ongoing financial plan."

The book provides good balance, with sage advice such as the following:

"Your investment plan should be designed specifically... for you – build the one you know you will follow. You have to be brutally honest with yourself about your ability to handle risk."

A Few Reservations

This is not so much a reservation as a caveat that this is not a simplistic 'how to' investment book.  Don't expect it to lead you into precisely what you should do with your investment portfolio. But perhaps that reservation is really a strength – as investors we need to educate ourselves and develop personally appropriate financial and investment plans. While he does not guide you in precise financial products, the author (in  Chapter 5) does offer a checklist of the traits of a good fund (applicable to both mutual funds and exchange traded funds). He suggests that you should seek low cost, rules-based and transparent, evidence supported, liquid investments.

While I liked a lot of the structure of the book, for me at least, I found that Chapter 1, The Individual Investor versus the Institutional Investor, was not the most engaging way to start the text.  I would have started with either Chapter 2, on the traits of successful investors, or possibly with the content of Chapter 3 on long term performance and the link of risk and return.

For Canadians, this book is of course written from a U. S. perspective.  Nevertheless, the vast majority of the points made are applicable in different countries and economies. I will be reviewing a few Canadian authored investment books in the coming weeks.

Concluding Thoughts

How is investing like walking into a restaurant? Read the beginning of Chapter 6 to find out! Along the way you will learn some valuable insights about the investment industry.

Most good books are common sense, and this is no exception. The book is full of concisely presented evidence as well though.  For example, in the decade ending in 2013 there were a total of 6911 mutual funds opened, but over the same period 3066 funds were merged, and 3105 were liquidated. Survivorship bias is indeed a thing.

A message that I fear many investors will need to keep in mind during the coming decade is the following:

"The only true guarantee we have in the markets is that things will go wrong and people's perception of risk will be in a constant state of change. Risk is actually more predictable than returns."

At the outset of the Conclusion chapter he mentions that someone offered him the following advice as he was writing the book to imagine that his grandmother came to him for investment advice, asking for 10 things that she could understand and that were important.  Maybe that explains a lot of why this book is as good as it is! You will need to get the book to see the full list, but number one is "Less is more" and the second is "Focus on what you can control."

The investing great Warren Buffett once said:

"Hang out with people better than you, and you cannot help but improve.'

–Warren Buffett

I strongly encourage you to 'hang out' with Ben Carlson through reading this book! Ben Carlson has 'hung out' with a lot of investment giants, and this book is our shortcut to reaping some of the benefits of that. And since more hanging out with good people is always a good idea, the book ends with a book list of great choices to move onto after this book.

The 224 page book, published in 2015 by Bloomberg/Wiley, is widely available through bookstores and libraries, or can be purchased through Amazon. It comes in hardcover (ISBN 978-1119024927), softcover and Kindle eBook formats.

Downtown Josh Brown, of The Reformed Broker fame, praises the book and Ben Carlson through these words:

"True investing wisdom—born out of experience and success—cannot be faked; it must be earned. This is precisely the type of wisdom that comes oozing out of every chapter in A Wealth Of Common Sense." 

I totally agree. This book would be in my top 5 investment books for an individual investor. Why not make it part of your summer personal finance and investment reading list?

This posting is intended for education only and should not be considered investment advice. The reader is responsible for their own financial decisions.  The writer is not a professional financial planner or investment advisor. For major financial decisions it is always wise to consult skilled professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Disclosure:  No compensation by any company, organization or individual has been offered, requested or received for writing this column. We do however belong to affiliate programs for some of the links that you find in our articles, details available upon request.

Books for Review: I will not promise a positive, or even any, review, but if you wish to submit your investment book for me to consider, contact me rhawkes (at) chignecto.ca. I am particularly interested in Canadian books.

Review: Portfolio First Aid

I picked up a copy of Portfolio First Aid at my local public library, intrigued by the title and impressed by the author team. Micahael Graham, PhD (Economics) was Chairman of the Board at Toronto investment firm Heathbridge Capital Management Ltd. at the time the book was published (2005), and had worked in investment industry for more than 40 years. He currently runs MGIS.  Co-author Bryan Snelson is a Vice-President and Investment Advisor at RBC Wealth Management.

What I Liked

Any investment book is only as good as the quality of the advice it offers. Given the expertise of the authors, one can have confidence in this book. An investment book also needs to be clear and engaging, and I would give this book high marks in both.

The writing is clear and precise.  I liked the use of boxes to draw attention to important points. The titles of these. In both these boxes and in sections titles effectively draw the reader in. By current standards the 2005 book is somewhat lacking in illustrative material, but the black and white visuals and tables explain key ideas effectively.

Perhaps it will not appeal to all readers, but I like how we come to know the authors through commentary throughout the book.  For example, on pg. 8 Michael relates the experience of flying to Winnipeg on Oct. 19, 1987, Black Monday, for a pre-planned meeting with investors. What do you say the day after markets have lost 23% in one day?

I particularly liked Chapter 7 Show Me The Money: Investing for Income. You will find coverage of dividends, real return and corporate bonds, laddered bonds, income trusts, dividend funds, preferred shares and much more.

After I finish reading a nonfiction book I always ask myself these four questions.  One is, was my time invested in the book, time well spent? Do I have confidence in the validity and balance in the presentation? Was I engaged in the book? What were the author's motives in writing the book? To the first three I could confidently answer YES for this book.

With respect to the last question, I suppose any author team always have mixed motivations for a book, but I do feel that in the case of this book there is an authentic desire to contribute to the well being of investors. The authors write in the preface

"There is nothing worse than having to inform an investor that his or her hard-earned savings has been badly mauled-sometimes irreparably"

They feel that with careful analysis and attention to a portfolio the odds of that can be lowered, while retaining reasonable returns.

Not That Book

One of the online reviews of the 2009 version of this book, a very negative review, complains that the book has little specific advice to offer, and emphasizes use of professional advisors more than it should. While I feel that the reviewer has been unfairly harsh, it's true that Chapter 4 You Need Financial Help! and Chapter 5 It's Always About You: Working With Your Advisor assume that the correct choice for most is to work with a financial advisor, rather than DIY investing. Perhaps because of this assumption, as the negative reviewer noted, little in the book that is detailed enough to guide the DIY investor in specific decisions.

I view this book as contributing to understanding the big picture of investing.  A recipe book for do it yourself investors it is not. Discount brokerage accounts are mentioned on only four different pages in the 2005 book, and not as a recurring theme.  Exchange traded funds (ETFs) find mention on only five different pages in the book.

That is not to say the book does not get involved. Chapter 9 Running With Scissors: Prescriptions for Managing Risk, for example, covers bond ratings, market risk, interest rate risk, default risk, lost-opportunity risk, purchasing power risk, stop-loss orders, options, calls, short-selling, puts, hedge funds and covered calls. They urge individual investors to avoid many of these financial instruments, however.

Concluding Thoughts

I liked this book and recommend it to Canadian investors for inclusion in a list of your first 10 investment books. I should point out that I reviewed the 2005 book, but an updated book on the same theme,  by these authors plus Cindy David, CFP. You can get the 2009 book at Amazon.ca in printed or kindle formats. You can pick up the 2005 edition from Amazon.ca and independent booksellers and you can probably find it at low cost from used bookstores, or free from a public library.

While no on can predict the future, there are many worrisome signs about the investing landscape these days.  It's a perfect time to consider how you can guard against the catastrophic losses, and this book will help.

Toronto based freelance financial journalist Jade Hemeon wrote the following in his review of the 2005 book on Amazon.ca.

"A useful and entertaining tour of the investment world that hits all the significant ports of call. Written by two veteran financial advisors in a vividly descriptive fashion, it offers sage advice enhanced by personal anecdotes and humor. This book will help investors avoid costly mistakes and develop a strategy that can withstand the drama of shifting market moods."

I could not say it better! Give this book a read, and you will come away with a deeper understanding of the investment world.  But don't expect the book to be a step by step guide to DIY investing, or you will be disappointed.

This posting is intended for education only and should not be considered investment advice. The reader is responsible for their own financial decisions.  The writer is not a professional financial planner or investment advisor. For major financial decisions it is always wise to consult skilled professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Disclosure:  No compensation by any company, organization or individual has been offered, requested or received for writing this column. We do however belong to affiliate programs for some of the links that you find in our articles, details available upon request.

Books for Review: I will not promise a positive, or even any, review, but if you wish to submit your investment book for me to consider, contact me rhawkes (at) chignecto.ca. I am particularly interested in Canadian books.

Diversification: Don't Grow Only Tomatoes!

Returning to our garden metaphor, let's assume you have a large parcel of agricultural land and that you want to make money by growing crops on it. While an analysis could be done to indicate, from crop yield and historical crop selling prices, what one crop would give you the most money per area for your farm land. Indeed, if your only goal is to have the largest statistical return on your farm investment, growing that one crop is the best choice.

Let's say you have determined that the optimum crop is tomatoes. If you have only one crop though, your risk will be higher when you grow just tomatoes than if you had a mixed garden. The reason for this is an event such as a late frost, a blight, or a pest that affects only tomatoes could wipe out almost the entire crop for a year.

If instead you grow a number of different crops, it is likely that environmental or other factors will not affect them all equally.  In fact, a cold wet season that is bad for some crops may be good for other crops.

Diversification

The idea of investing in different sectors to limit risk is called diversification. For individual investors while return on investment is important, limiting risk is also crucial.  For those in or near retirement, the need to limit investment is even more critical, since there is less time to rebuild after major stock losses.

A similar situation applies to investments, where diversification across different investments can help limit the amount of risk.  This is because changes in the economy affect different regions and industries differently. While rising interest rates might be negative for one industry, it  might be positive for another, while another is not interest rate sensitive at all.

We can diversify by making sure we hold enough different stocks, and that those stocks represent different types of companies from different regions.  It is also critical to hold bonds as part of your diversified portfolio, and possibly other investment types.  The next section provides more detail.

Types of Diversification

So how do you effectively diversify?

• Stocks and Bonds  Generally speaking high quality bonds go up in value when stocks go down, and vice versa, so having a mix of stocks and bonds is the first rule of diversification.  The exact mix will depend on your risk tolerance and financial situation, generally holding a higher amount in bonds later in life.
• Different Industries Sometimes overlooked is the importance of having a good mix of different types of industries represented in your portfolio.  You could be invested across the entire Canadian stock exchange, and still not have good industry diversification, since financial institutions and energy play such a large role in the exchange.
• Different Regions While the global financial world is interconnected, and it is likely that major stock losses in one region will influence others, that does not mean that they will be equally affected.  As well as Canada and the United States it is important that you have holdings in the rest of the developed and emerging markets too.
• Alternative Investments While stocks and bonds have been the traditional base for most investment portfolios, alternative investments, things like real estate trusts (REIT) or infrastructure, can further diversify your portfolio. These alternative investments can be particularly important if you need regular income from your investments.
• Types of Bonds As well as having bonds as part of your diversified portfolio, those bonds themselves should be diversified.  Your rate of return will be higher on bonds with longer durations, but longer duration bonds will be more sensitive to interest rate changes.  Also, a mix of government and corporate bonds is probably appropriate. Finally, it may make sense to hold some bonds, or similar instruments, that adjust their value according to interest rates.
• Different Sizes Sometimes the largest companies in a market perform better or worse than the smaller companies.  Therefore we can add a bit of diversification by having instruments that hold companies of varying sizes, not just the largest 60 in the TSX or the largest 500 in the Dow stock exchange in the US.
• Commodities I do not personally hold commodities in my investment funds, but some argue that this is yet another way to diversify, especially if one holds a mix of precious metals, oil, minerals and other commodities.
• Cash-Like Instruments Sometimes overlooked is the importance of having some funds in things like investment savings accounts or GICs.  With these a part of your portfolio is fully protected, and they can help you weather a significant stock market crash. If you use your investments to fund your retirement through income, we recommend at least a year worth of funds in these instruments.

Our list is somewhat longer than many diversified portfolios. In our view the current economic climate, with interest rates very low, the major developed economies having high valuations, and considerable political and economic uncertainty around the world, we feel it is important to be more diversified than was required in the past.

Achieving Diversification

Upcoming posts will show how you can achieve a diversified portfolio using different instruments - mutual funds, ETFs and other options.  At this point we will briefly mention two possibilities that may appeal to starting investors.

1. Tangerine Investment Funds  If you are a Tangerine customer, it is easy to add one (or more) of their balanced investment funds. These have relatively low MER, are easily purchased in small amounts, funds can be transferred from existing accounts, and you don't need a discount brokerage account. There are a family of funds with differing stock to bond ratios.  For example, their IN220 Balanced Fund has 40% Canadian bonds, 20% Canadian stocks, 20% US stocks and 20% international stocks.  The fund has a 5 year average annual performance of 8.1%, and the MER is 1.07% with the TER an additional 0.02% (see here for a description of these terms). There is no exposure to alternative investment classes in this fund.
2. Balanced Mutual Fund There are thousands of balanced mutual funds, we will mention only one  choice here as representative of the better choices. The PH&N RBF1350 fund, now part of the RBF family, is a solid balanced mutual fund with a reasonable MER of 0.88% (if purchased in the D form through your discount brokerage). It holds about 36% bonds (mainly Canadian), 29% Canadian stocks, 17% US stocks and 15% international stocks, along with a few percent in cash. Over the past five years it has averaged almost 8.7% return. You may need a discount brokerage to get this MER with no other fees, but you can readily buy forms of this fund through financial institutions. You can start with as little as $500 initial investment.
3. Balanced ETF Fund While there are ETFs that are a balance of stocks, bonds and other investments, as Andrew Hallam has lamented, the time is long overdue for a simplified, effective couch potato type of balanced ETF. iShares do offer a number of options, including the XGR Growth Core Portfolio ETF that is well diversified, including alternative investment classes. It has a comprehensive MER of 0.64%, and the 5 year average annual performance has been 5.5%. You will need a discount brokerage to purchase it, and unfortunately it is only thinly traded so you may need to be patient or pay a bit of premium to get units of it.  Two other 'fund of funds' from iShares that you may want to consider as a one stop ETF are CBD and CBN.  We will analyze these in more detail in a future post, but CBD has a tilt towards bonds and other income products, while CBN is tilted towards a balance of equities from around the world.
4. Set of ETFs Of course it is easy to build your own diversified balanced set of holdings within a discount brokerage. The Canadian Couch Potato provide guidance on how you can do exactly that, at a very low cost. I am a fan of their approach, and especially for those far from retirement, I think one of their model portfolios makes good sense.  Nearer or in retirement, I personally choose to add some additional types of diversification (see above). In a future post I will look at ETF options for balanced accounts in more detail.

Final Thoughts
While the degree of diversification depends on your investment horizon (how long until you probably need to access funds), all of us need diversification. Any one type of investment vehicle can suffer possibly large losses, and while often markets rebound quickly, this is not always the case. Also, emotionally large shifts in book value are difficult to take calmly.  A major theme in our site will always be on ways to lessen volatility while maintaining a reasonable expected performance and low investment costs. So keep following us at fundsgarden and @FundsGarden!

This posting is intended for education only. The reader is responsible for their own financial decisions.  The writer is not a financial planner and reading this column should not be interpreted as obtaining individual financial planning advice. For major financial decisions it is always wise to consult skilled financial professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Disclosure:  The author of this column holds funds in the RBF1350 Balanced Fund and in the iShares CBD, CBN and XGR ETFs mentioned.  I am a Tangerine customer, but do not hold any of their investment funds at the current time.

Mutual Funds vs Exchange Traded Funds

While purchase of individual stocks and bonds makes sense in some investing plans, for most seeking a diversified investment portfolio, mutual funds or exchange traded funds (ETFs) will be the choice.  In this post we introduce these products, and examine the differences and similarities between these investment vehicles.

Mutual Funds

Mutual funds are offered by all of the major financial institutions, as well as by companies operating only in the mutual fund space. The folks at FundLibrary keep track of the Canadian funds available (using the Fundata Canada database), and as of early 2017 there were 17,471 different mutual funds operated by 449 companies in Canada. The actual number of funds is larger still, since a number of funds have different clones that hold essentially the same products (there may be a form of the fund when it is sold through a discount brokerage, and a different form for those sold through financial advisors).

You can purchase mutual funds through your financial institution, through some financial advisors, or through a discount brokerage (in a few cases those with large holdings can purchase them directly from the fund company).

The expense structure for mutual funds can be complicated, but the situation is becoming simpler and much more transparent due to recent legislation. You will pay a percentage of the holdings each year to account for the operations of the mutual fund (the costs of purchasing and selling stocks, administrative costs, etc.) There may, or may not, be charges at time of purchase or redemption in addition.  We will look in detail at the costs of mutual funds and ETFs in a future column.

Some mutual funds track an index (e.g. the TSX Canadian stock index, or a bond index), but many have a more complicated structure, aimed at for example providing regular income or providing the right mix of stocks and bonds for a certain retirement age.

If one is going to just hold a few financial products, a balanced fund, that holds a mix of stocks, bonds and possibly other instruments, can be the simplest choice. For example, the Phillips Hager & North (PH&N) balanced mutual fund RBF1950 holds a mix of about 36% bonds, along with equities from Canada, the USA and internationally. By going to the information sheet linked above you can see the holdings, cost, and past performance of the fund.

Exchange Traded Funds (ETFs)

As the name implies ETFs are bought and sold on a stock exchange.  For most individual investors it will only be economical to hold ETFs if you have a discount brokerage account (a topic for a future column).  You purchase and sell ETFs through this brokerage account.

In Canada the major players in the ETF field are iShares by Blackrock,  BMO Asset Management, First Asset, Horizons ETFs, and Vanguard Investments Canada,

The idea of an ETF is that it holds a number of financial products, usually stocks or bonds, in a package. In most case the products held match some index (or compilation of several indexes according to a formula).

For example, the iShares XIC ETF tracks the Canadian composite stock index, so in one product you hold essentially a bit of each company on the TSX, in proportion to the size of that company.

As another example the Vanguard VUN ETF tracks essentially the entire US stock market, with an index including companies of different sizes and from all sectors.  It holds a little more than 3500 individual stocks.

Some ETFs hold bonds, with a common example being the Vanguard VAB ETF, which invests in high quality government and corporate Canadian bonds with a variety of durations.

Comparison

As the above demonstrates some ETFs and mutual funds will hold very similar products, although in general more mutual funds are active, in the sense of not simply tracking an entire stock exchange index. They have a lot in common, in that they both hold a number of products, usually at least 50 and often thousands of individual stocks.

• How bought/sold:  ETFs are bought and sold on a stock exchange, while mutual funds can be bought and sold without a brokerage account. You sell ETF's in terms of number of units, while you redeem mutual funds in dollar amounts generally.
• Price: The price of a mutual fund is set once a business day (at end normally), and you redeem or purchase at this price in dollar units (there is usually some minimum price).  The cost of an ETF will, like a stock, go up and down throughout the day. 
• Guarantee/Risk: There is no guarantee on the value of either a mutual fund or an ETF. These are not like investment bank accounts and GICs and they do carry risk that you can lose principal value. The amount of risk depends on what the holdings are in the ETF or mutual fund, rather than one being in general more risky than the other.
• Costs: We will explore this in more detail in a future post, but in general the annual management costs will be lower in ETFs and in mutual funds. However, there will be a per transaction cost so when you buy and sell ETFs there will be this additional cost (there are exceptions we will explore in future columns). In general it does not make sense to do frequent trading in small amounts of an ETF due to these costs.
• Transparency: In general both products are transparent regarding holdings, past performance, etc., although the situation is most clear for ETFs that track an index.
• Reinvestment: Normally ETFs will offer a DRIP option to reinvest dividends in additional units, if that is your wish, and normally mutual funds can be set up similarly if desired.
• Name: Most ETFs have a three letter stock exchange designation, such as VAB or XIC, while in general mutual funds have a combination of letters and numbers in a longer name such as RBF1950, with the first letters designating the mutual fund company (RBF means Royal Bank Fund, who handle PH&N funds now) and the latter part being the number of the actual mutual fund.

This posting is intended for education only. The reader is responsible for their own financial decisions.  The writer is not a financial planner and reading this column should not be interpreted as obtaining individual financial planning advice. For major financial decisions it is always wise to consult skilled financial professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.

Disclosure:  The author of this column holds funds in the mutual fund (RBF1950) and all ETFs mentioned in this column (XIC, VUN, VAB).

A Garden of Funds

Think of your investments as a garden. You hope it will flourish and grow. It probably contains at least a few types of vegetables (funds).  Just as it is important to choose vegetable varieties relevant to your climate and soil, a good choice of funds for you is determined by your personal situation.

While a few people hire a gardener to do the work of maintaining their garden, most they take care of the garden themselves. While at times this can seem drudgery, most of the time gardening is rewarding.

We feel the same is true for investments: most people are capable, with a bit of research and education, of making good investment decisions. While occasional advice from a professional financial advisor is always wise, we feel that  you should feel in charge of your own investments.

Ultimately better decisions are made when you have educated yourself financially. The effort that we plan to put into this blog, and associated Twitter account, is based on the belief that investment education is important. We will not offer formal investment advice, and urge you to seek appropriate financial planning and investment advice, but we do hope to contribute to your investment education.

In the same way that sometimes a garden will perform beyond your expectations, sometimes an unforeseen event like a drought or severe storm will cause unpredicted damage to your investments. Part of feeling in charge of your own investments is to be emotionally ready for the unexpected.

Having diversification, a collection of different types of investments, will help you weather financial storms, in the same way that not growing only a single crop will make it less likely that you have a disastrous gardening season.

In my children, and now in my grandchildren, I see their joy when growing vegetables themselves.  Feeling empowered to understand and grow your own investments can be positive. Let's learn together.

This posting is intended for education only. The reader is responsible for their own financial decisions.  The writer is not a financial planner and reading this column should not be interpreted as obtaining individual financial planning advice. For major financial decisions it is always wise to consult skilled financial professionals. While an effort has been made to be accurate, any statements of fact should be independently checked if important to the reader.