The Beginner’s Guide to Saving and Investing for Canadians – Book Review #5

The Beginner’s Guide to Saving and Investing for Canadians is a great book, available for $10.50 as a digital download or, for a bit more, as a hard copy on Amazon.

“The Beginner’s Guide to Saving and Investing for Canadians” is an extremely long title for a very compact book. That’s not a dig, however, as it’s efficiently packed with commonsense financial advice.

The book is divided into five chapters; I’ll give my comments on each:

Chapter One: Making a Budget – Krystal Yee (GiveMeBackMyFiveBucks)

Krystal’s chapter deals with the most basic of personal finance concepts: how to determine your net worth, how to deal with debt, -how to budget, and how to increase your regular surplus. The latter is important, or else the remaining chapters about saving and investing wouldn’t be very helpful. It was the least interesting chapter for me, simply because I’ve gone through these motions many times (in my own life, in helping others, and in reading personal finance books).

Here’s one huge compliment for this book that became abundantly clear during my reading of the first chapter: The Beginner’s Guide is vastly more readable than other personal finance books. There aren’t massive charts nor blank lines nor equation tables to fill in throughout the book. The book’s budgeting tool is available online at its website. I didn’t need it, but if you’re a true beginner reading this book, it’s there for you. Also, the book remains as approachable as a novel like The Wealthy Barber, yet doesn’t waste the reader’s time with prose. The blogosphere has some pretty good writers.

Chapter Two: Where to Save Your Money – Jim Yih (RetireHappy)

The material in this chapter, again, was well traversed — RRSPs, TFSAs, RESPs, taxable accounts… I did, nevertheless, learn something completely new:

“You’re allowed a $2000 lifetime contribution [for RRSPs]… Your overcontribution can be used as a deduction in future years.”

I had no idea. Obviously, avoiding over-contributions is not rocket science. It is, however, nice to know that if I made a minor mistake  there’d be a smidgen of ‘wiggle room’ (e.g. when I bought back my pension service — these formulas are ridiculously complex and my pension plan gave me insufficient information).

Jim also explains RESPs really well. It completely refined my understanding of them and I’ll definitely refer to (and defer to) this book for its wisdom on RESPs  in the future.

Chapter Three: Investing Wisely - Ram Balakrishnan (CanadianCapitalist)

Ram makes excellent arguments for index funds but, most importantly, provides an extremely practical guide for actually implementing passive investing.

I was glad to find that he supports “buying international”. I’ve long argued that Canada is too tiny a market, it’s too focused on financial and energy sectors (the former will be hurt by the housing bubble and the latter could get ruined by asset deflation), and its growth prospects are too limited in the long run (compared, in particular, to emerging markets). A Japanese-style “lost decade” could ruin TSX returns and, subsequently, the retirement of anybody whose portfolio is “overweight” on Canada’s little market. So don’t take the risk. If you’re going to index, read this book and do it intelligently.

Chapter Four: Dividend Investing – Frugal Trader (MillionDollarJourney)

FT spends some time talking about how to use a quasi-index, quasi-dividend approach to investing, which was interesting, but what I most enjoyed was his advice on tax planning for dividend investors. Unbelievable, right? Who enjoys anything about taxes? Well, it’s enlightening, clear, and not at all painful. I always thought “interest-bearing investments go in RRSPs and TFSAs; dividend stocks go in taxable accounts” — and I’m not entirely wrong. But I also learned about the literal perils of putting US stocks in a TFSA.

I have one complaint about this chapter, but I’ll save it for my small list of gripes at the end of this review.

Chapter Five: Buying the Right Insurance – Glenn Cooke (LifeInsuranceCanada.com)

This is a must-read chapter if you’ve ever wondered “Do I have enough insurance?” or “Do I even have the right types of insurance?”. Glenn makes it crystal clear — and what else would you expect from him? He helps you figure out what needs to be insured and what doesn’t (hint: catastrophic financial loss — this sounds simple but I guarantee his explanation will make you re-think your coverage, if not the entire insurance industry).

Glenn also talks about term insurance versus permanent insurance, as he did on this site, but he goes into more detail (yes, I really did learn more). He delineates and explains disability insurance and critical illness insurance — two types of insurance that, before reading this book, I perpetually confused. In fact, I referred to them interchangeably on a few occasions. My ignorance is embarrassing, but nunc cognosco ex parte. Oh, and by the way, one of these two insurances — disability or critical illness — is a lot more important than the other.

The Bottom Line

I give “The Beginner’s Guide to Saving and Investing for Canadians” a 9 out of 10. Why not a perfect 10?

• In Krystal Yee’s chapter, I was really annoyed with her approach to debt. She propagated the typical dichotomy between the “debt avalanche” (paying highest interest loans first) and the “debt snowball” (pay the smallest debt first, regardless of interest rates). Taking her cue from Dave Ramsey, she says debt snowballing is more “satisfying” while the debt avalanche is empirically correct. Well, she’s half right. To me, saving hundreds on interest and fees is much more satisfying than the “debt snowball”. If readers don’t find this satisfying, then personal finance writers aren’t doing their jobs — making wise financial decisions more attractive. Show people the interest saved with a “debt avalanche”. Demonstrate how they’ll pay off their debt sooner. I’ve never heard Gail Vaz-Oxlade quiver on this point. The debt snowjob — er, debt snowball — keeps people in debt longer and costs a lot more money. Don’t be an irrational sucker. The credit card companies don’t have emotions, and they love when you pay more interest. I think the best way to deal with this issue would be to delve into greater depth on the topic of debt. To keep the book’s excellent flow, separate the chapter on budgeting into two chapters: a chapter on budgeting (the ‘income statement’) and net worth (‘the balance sheet’).
• There were a lot of minor spelling errors in the eBook that I read. These may or may not be in the print edition. I tend to notice the errors of others (and rarely do I notice my own). This didn’t detract from my reading experience, but I mention it because I’d be happy to proofread the next Edition for free for an ‘assistant editor’ credit.
• There are a few good tools available online as companions to the book, but I’d like to see more. (Again, Edition #2, anybody?)
• In chapter four, the advice that FT gives about fundamental analysis (a topic that is intrinsically and necessarily tied up with dividend investing) is absolutely correct. I don’t think, however, that he gives enough advice. For example, FT tells us to avoid companies that have too high of a payout ratio (as I did on this blog, I promise I hadn’t read the book at that time) but, for example, he doesn’t discuss the dangers of an excessively low P/E ratio. Dividend investing is a massive, complex topic. It’s not a “need-to-know” topic for starting investors. But if you’re going to delve into it, do it up. I know, it’s a short book and with good reason. Teach people the basics of financial analysis — the key ratios — in a few thousand words. Heck, if the next edition includes supplementary downloadable materials, include an appendix of ratios or, perhaps, an example set of financial statements with a basic guide. Teach people the bare-bone basics, e.g. where to find “debt”, and how to calculate “Debt-to-Equity”. People won’t walk away as financial analysts, but they’ll “get” why each ratio is important. (That’s how our grandparents researched the stocks in their investment portfolios. They used to have to call Investor Relations branches at companies and request financial statements. Nowadays, you can find these docs online instantly, and you’re still too lazy to learn basic financial analysis??) At the moment, this chapter does a great job of explaining the dividend yield and the payout ratio, and why we should care about each, but not much else about fundamental analysis.

These negatives, however, aren’t significant detractors. They’re actually suggestions for improvement. It’s a short book that’s packed with easy-to-read, smart financial advice from some of Canada’s eminent personal finance bloggers. It was far more useful to me, a definitive non-Beginner, than I expected. I can, in good conscience, highly recommend this book even more than The Wealthy Barber or The Wealthy Barber Returns, because it explains the topics in a better sequence and in much greater, more actionable detail.

You can buy a digital copy for as little as $10.50, or buy a hard copy on Amazon for $19.95. If you’re a parent or grandparent, this book would definitely make an excellent Christmas gift, especially for somebody in their 20s or even teens.

On Monday, I’m going to announce a giveaway related to this book (no, I’m not only giving away the book!) to show my appreciation for TF’s Dear Readers (North Korea has a Dear Leader, TF has Dear Readers). Stay tuned and stay ENGAGED!