Stop Buying Mutual Funds: Easy Ways to Beat the Pros Investing on Your Own

Sarah Robertson is editor of the Canadian Book Review Annual.

opens this book with a list of 10 reasons for ditching mutual funds and
going it alone. Not only do most funds underperform the market averages
but those held outside an RRSP also have negative tax consequences.
Above all, the annual management expense ratio, or MER, charged by a
fund erodes returns over time. For example, a $10,000 investment that
returns 10 percent over a year will grow to $174,494 in 30 years; for
the mutual fund investor burdened with a 2 percent MER, that same
investment will grow to only $100,627—a difference of $73,867.

As an alternative to mutual funds, Heinzl recommends that investors
build a diversified portfolio consisting of bonds (as opposed to bond
mutual funds), individual stocks, and/or index funds. Included in the
book are sample portfolios that reflect strategies discussed in the book
(the all-index stocks approach, the all-stock approach, and every
approach in between). The author devotes his first four chapters to a
discussion of the drawbacks of mutual funds and then provides individual
chapters on self-directed RRSPs and non-RRSP discount broker accounts,
asset allocation, buy and hold (Heinzl’s favorite investment
approach), index stocks, diversification, the TSE 300, speculative
investment techniques, and administrative matters. The appendix is an
annotated list of stocks on the TSE 300 index. (Because the cutoff point
for this book is the spring of 1998, there is no discussion of the new
S&P/TSE 60 index). The two-page index that concludes the book is clearly
a rush job.

Heinzl builds a compelling case against mutual funds, but he does
investors a disservice when he suggests that stock-picking need involve
little more than checking the TSE Review each year “to make sure your
Canadian stocks are still in the TSE 300.” Nor does he provide
supporting evidence for his claim that “when it comes to investing,
the facts suggest that anybody has as good a shot as the average mutual
fund manager at achieving the returns posted.” Finally, Heinzl’s
text is riddled with exclamation marks and such infelicities as “Holy
unfair mutual fund capital-gains distribution method, Batman!”

Read this book to discover the awful truth about mutual funds, but look
elsewhere for a measured and in-depth treatment of do-it-yourself
investing.