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.

34 Responses to A Helping Hand for Canadian Investors

  1. Bernhard Spalteholz October 1, 2010 at 12:30 am #

    I have been following this blog for some time and would be very interested in the book. It is always interesting to read various viewpoints on investing – although a lot seem to favour fairly risky investiment with the chance for high return. Thanks for the interesting blog!

  2. SophieW October 1, 2010 at 3:39 am #

    Sounds like another interesting book, I’m curious how it differs from the many others out there?

    Is this Co-op an online organisation or is it mostly print?


  3. Canadian Couch Potato October 1, 2010 at 9:00 am #

    @Sophie: The book is more practical than most others: it discusses specific products and suggests complete portfolios rather than simply explaining the value of indexing. And yes, the Co-op mostly operates online.

  4. Dong October 1, 2010 at 9:23 am #

    Miam miam free book 🙂

    I was pondering the idea of joining the Co-Op last month, you cant get too much support !

  5. Mary Long-Schimanke October 1, 2010 at 9:59 am #

    Pick me!! Pick me!! *hands waving wildly in the air*

  6. Catherine October 1, 2010 at 10:15 am #

    I didn’t even know something like an investor co-op existed! What a great idea. I would definitely like to read this book 🙂
    Keep up the good work. Your blog is one of my favourites 🙂

  7. Tracey H October 1, 2010 at 10:36 am #

    Wow, I’ve never heard of that co-op before. As a long-time mutual fund investor (and now ETFs), I’d love to read this book.

  8. Sam October 1, 2010 at 10:56 am #

    As usual, your research is always looking for diamonds of investment in the rough.
    Thank you for your good work. This is specially important, considering the financial industry constantly finding new ways to look after themselves rather than helping their customers to keep and preserve their principal and some.
    This book would be an very good addition to my continuous financial education.

  9. Charles Martineau October 1, 2010 at 11:14 am #

    As a member of the co-op, can you mention my work on discount broker review that I did for http://independentinvestor.info/content/view/936/1/
    It will be a great help for users of the site to be more comfortable to pick a discount broker in Canada.

  10. Alex C October 1, 2010 at 11:34 am #

    Interesting idea, do they cater mostly to older clients near retirement? I’d be interested in the book. Thanks!

  11. Chris October 1, 2010 at 11:35 am #

    I’ve only recently begun to educate myself on mutual funds and investing for my retirement. Would ppl recommend membership for someone who is a textbook neophyte in the world of investment?

  12. Darren October 1, 2010 at 11:43 am #


    That is just the information I have been looking for, thanks for the heads up.

    Thanks for all your inexhaustible work which is providing help to many.

  13. Brian October 1, 2010 at 11:54 am #

    Sounds like a great organization! Count me in on the draw.

  14. Garth Rustand October 1, 2010 at 12:29 pm #

    Thanks so much for the article. But you need to check your numbers. Strangely enough higher risk has almost always meant LOWER returns for Canadians over the past 20 years (for which we have reliable data). This is also true in the US.

    First, high volatility assets get people to behave badly, mainly that we buy at the top and sell at the bottom. The biggest study on this was from Dalbar which found that long term US equity mutual fund returns were just fraction of index returns because of poor behavior (2.5% vs. 12.2% on the index). And international index assets are 35% more volatile than Cdn dividend/income equity (Globe Hysales Peer Indexes). Low volatility usually means better behavior.

    Second, if you measure the performance of investment vehicles that investors actually use (mutual funds as opposed to an index) you find the returns are almost always lower on high risk assets as opposed to low risk assets. The Globe’s Peer Indexes measure the performance of all the funds in a given asset class. This tells us how well managers do with the asset class and what type of returns they deliver to consumers.

    Following are all Globe Peer Index 20-yr avg annual returns with Standard Deviation from June 30, 2010:

    CDN Dividend & Income: 8.04%, SD 9.18
    CDN Equity: 7.12%, SD 13.36
    International Equity: 2.70%, SD 14.24
    Emerging Markets: 4.65%, SD 22.08 (15 yr)
    European Equity: 2.74%, SD 15.60 (15 yr)

    It is true that the MSCI Emerging Market index has outperformed all of the above: 9.64% (20 yr) but at huge volatility of 22. But I will stick with my guns. Investors are far better off with lower volatility assets. A bird in the hand and all that.

  15. James October 1, 2010 at 12:57 pm #

    I had no idea this type of coop existed… and in my own backyard to boot.
    I’ll definitely be checking it out, as part of my own learning process.

  16. Paul G October 1, 2010 at 2:09 pm #

    Very interesting, those standard portfolios will at the very least give people an idea of what things should look like, asset-distribution-wise, depending on their goals.

  17. ABC October 1, 2010 at 4:07 pm #

    What a great debate between experts, both essentially arguing from the same side of the fence, as they favour passive index investing.

    Garth Rustand points to interesting data about results in the community of professional mutual fund managers, mostly made of active traders. We knew that in the long run they can’t beat the index, but his data show that they can’t even manage the volatility. In this context it makes sense to recommend a prudent approach focussed on managing the volatility instead of the returns.

    But will index investors fall into the same trap where we find so many active traders?

    When you craft your approach with a passive index investing method, is it likely that you will still remain active? Will you continue to panic and sell at the bottom? Will you greedily buy at the top? Most likely index investors will go for a more boring but safer approach: buying, holding and rebalancing a range of indexed funds and ETFs designed to diversify a portfolio across different asset classes.

    In that context the CCP points to broader asset classes that may very well do better over the long run for patient investors interested in the index philosophy. Provided they are able to stick with it over a long period of time.

    The CCP and Rustland are both likely to lead investors to success stories. But they may appeal to investors with different backgrounds and personalities.

  18. Pacific October 1, 2010 at 5:18 pm #

    ABC: great overview!
    CCP: count me in for another win!

  19. Canadian Couch Potato October 1, 2010 at 5:21 pm #

    @ABC, you are a wonderful diplomat. I think Garth and I agree on the important things, if not the details. He was a lot more experience watching investors blow themselves up, and I respect his experience.

  20. Mark October 1, 2010 at 6:38 pm #

    Would be an interesting read.

  21. Doug October 1, 2010 at 7:20 pm #

    Enjoyed the blog and all of the comments.

    On a different note. Did anyone read the Steady Hand column in the globe today? Is it just me or does it read as an advertisement for Steady Hand. I double checked the top of the page to see if it actually said “advertisement”.

  22. Financial Cents October 1, 2010 at 9:40 pm #

    Great post.

    I wonder though Dan (and Garth), why on earth have 20% cash in a “capital preservation” portfolio? I mean, cash will always lose-out to inflation, and over a few years, let alone many year, that loss will certainly be noticeable.

    Also surprised a bit about the “aggressive growth” portfolio. Lots of juicy, high-MER funds in there.


  23. Ed October 2, 2010 at 2:37 am #

    This book sounds like a very interesting read. It’s difficult to find useful advice for people that are new to investing, and if this was as helpful to me as the Rob Carrick book you reviewed earlier this year, I may pick it up.


  24. Patrick October 2, 2010 at 7:50 am #

    I have also heard that emerging markets underperform, not because the companies do poorly, but because optimistic future growth estimates are already built in to the prices. Effectively, emerging markets tend to have a lot of growth stocks, which underperform value stocks.

    However, I have no evidence for this assertion. Where did you get your 12% figure?

  25. Canadian Couch Potato October 2, 2010 at 10:18 am #

    @Patrick: The 12% figure is based on the performance of the MSCI Emerging Markets Index, expressed in Canadian dollars. The data is from Libra Investment Management’s table of historical returns available here: http://www.libra-investments.com/re01.htm

  26. Andrew Hallam October 2, 2010 at 1:18 pm #


    According to John Bogle, investors in index funds also do more poorly than the indexes themselves. His raw data seems to indicate that people chase performance—whether they go with low cost or high cost, human wiring tends to be similar. I also believe that those chasing growth also tend to be the most emotional: earning the lowest returns. I don’t invest in Emerging markets at all either. And I won’t because I don’t want my heart yanked all over the place—which could lead me to do something dumb.

  27. rmch October 2, 2010 at 2:53 pm #

    I’d be interested to find out how many people are using the Investor Aid Couch Potato portfolio. I have just started the vanilla Global Couch Potato. Is there performance data on the former? (I know there is for the latter).

    From an ETF cost basis (say, adjusting twice per year)… is there any advantage of investing into two different portfolios? Let’s say $100k over 15 years… Or just minimize the trading costs and stick with one? I know I could do the math, but I’m also thinking from a diversification perspective. Thanks.

  28. ABC October 2, 2010 at 9:06 pm #

    Investors would do well to resist the lure of financial sirens by following the example of Ulysses. But life gets uncomfortable tied to a mast. Why not lounge on the couch instead while watching the great show here on this blog. And when an asset class is poking at you like a broken spring, well… it’s fine to move an inch over or to repair the couch.

    Adding emerging markets to a portfolio may mean keeping this asset class well under 1% in your policy. When unfamiliar or uncertain about an asset class, why not own just a little, watching and becoming more familiar with it. Or is it like wine at an AA meeting? Are asset classes addictive?

    There is no doubt many active traders have been lured by the charms of index funds and ETFs. Data show they under-perform the market. Fine, but do they beat investors who follow the CCP philosophy and the principles behind index investing? And can investors remain loyal to this approach to ‘buy, hold, diversify and rebalance’?

    In the long run the market is a very powerful force. No one seems able to beat it. But low cost index funds and ETFs allow us to join this force. In the short run we know it will lead to churning waters. Diversification across asset classes should keep our financial boat from sinking. And in the long run we get the best chance there is of reaching our destination… to meet Penelope.

  29. Up Too Late October 2, 2010 at 10:00 pm #

    Very interesting discussion. Agree that in the end, what matters is what your return is, not what the index’s is. If you can’t stick to your asset allocation then it would seem that you are better to stay in lower risk investments which you will actually be able to buy AND hold!

    Love the site. Will definitely look at the Co-op. Would love to have the book.


  30. Canadian Couch Potato October 4, 2010 at 3:18 pm #

    @Mark/Financial Cents: Anyone in retirement should have some of their assets in cash, and 20% is not unreasonable for those who have saved enough that they no longer need much portfolio growth. That said, money market funds make no sense today. A five-year GIC ladder would be far more appropriate and would keep (just) ahead of inflation while preserving capital.

    The Co-op offers options for investors who insist on actively managed funds. I think you know my opinion of these!

  31. Canadian Couch Potato October 4, 2010 at 4:22 pm #

    Thanks to everyone who commented and Tweeted. The winner of the draw for the book is Catherine in Victoria. Congratulations!

    To those who had some technical difficulties registering for the Co-op, the problem should be fixed now. Apologies for the inconvenience.

  32. GT January 23, 2013 at 5:46 pm #

    Hi, now that Canadian couch potato has also started a DIY investor service, what’s the difference between that and co-op’s service (besides cost)? I’m looking for help to reorganize my portfolio and not sure who is better?

  33. Canadian Couch Potato January 23, 2013 at 6:40 pm #

    @GT: For $75/year I can’t imagine that the level of service the Co-op offers can come anywhere close to our DIY service. We estimate we devote about 15 hours of work to each client’s account, assessing all your family accounts, your tax situation, your risk capacity, etc. And because you’re working with licensed advisors (not sure if this is the case at the Co-op), we can walk you through all of the trades and account maintenance.

    For $75 you may just want to sign up with the Co-op and give it a shot: that’s a pretty low-risk purchase. If you’re not happy, don’t hesitate to contact us afterwards.

  34. Mary Long-Schimanke January 23, 2013 at 7:13 pm #

    Sounds great! I can always use all the help I can get! I’d love the book….

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