Letters to the editor

ONE SIZE DOES NOT FIT ALL

Regarding “Ask an expert” (Upfront, November 2009), I was disappointed at the oversimplified response to the question “I’m 57. Should I borrow to invest in stocks to make up for market losses?” The expert, David Trahair, advised getting out of stocks altogether. One of the basic principles of providing investment advice is know your client. In this case we know nothing about the client other than his or her age. We do not know his or her assets, debts, income level, expenses, years to retirement, number of dependents, risk tolerance, objectives, etc. Oversimplifying the situation and response makes it seem as though the investment world is just that, simple. It isn’t, as many investors and advisers have learned in the past year. Equities have proven over the long run that they can provide superior rates of return to most other asset classes and over time the risk is diminished. If we knew all the facts perhaps an all-equity portfolio might even be appropriate.

A one size fits all approach demeans the entire investment world.

Marc Furlotte, CA, CMC
Halifax

David Trahair’s reply: You are correct; providing financial advice without knowing all the details of the client’s situation is indeed fraught with peril. But the reason I suggest that people approaching retirement consider getting out of equities altogether is simple — being overexposed to equities can lead to personal financial disaster.

The inherent problems with equities at that age include:

Emotion: we often invest with our emotions rather than with cold hard common sense based on facts. The S&P TSX composite index lost 49.64% of its value, from a peak of 15,073 on June 18, 2008 to the pit of 7,591 on March 6, 2009. Many people panicked; they sold and crystallized their losses at the worst time.
Historical results: I have done a detailed analysis of the S&P TSX composite total return index over the past 50 years. The average annual rate of return was 9.52% a year, while the average rate for five-year GICs over the same period was 7.35% a year. If you were 100% invested in equities over the same period, utilizing a typical Canadian equity fund with a management expense ratio of more than 2% (the average fee), you were in GIC-return territory. Space limits prevent mentioning the other problems of stock-market investing, but if you can get near-equity rates of return in a simple GIC that charges you no fees, why bother with the market?
The future: that 50-year history includes the post-Second World War baby boom and the expansion of many core industries. What will the next 50 years be like? What happens when all baby boomers start drawing retirement savings out rather than pumping money into the market? Personally I’m not counting on the market in the future.

“HARMONY" STRIKES A CHORD

I was very impressed with “Harmony at the top” (October 2009), which featured the achievements and accomplishments of Monique Leroux, head of Desjardins Group. It is inspiring to see a woman and CA at the helm of a large financial institution. We sometimes forget that banks are only one of the pillars of the financial institutions and that insurance, cooperatives and trust companies hold up the full platform. I worked in financial institutions for more than 15 years, and Leroux’s quotes in the article about the financial crisis are astute.

One of my observations of nontypical accountants who think outside of the box is that they are often musicians as well. I found it interesting that Leroux and Zarin Mehta (People) are also accomplished musicians.

Donna Sharp, CA, CMA
Toronto

Letters should be sent to: The Editor, CAmagazine, 277 Wellington Street West, Toronto, Ontario M5V 3H2 (letters.editor@cica.ca). CAmagazine reserves the right to edit / shorten them for clarity.