I once read a book by a high-profile media financial-planning pundit, who gave an example of a man age 65 who wondered whether he should retire or keep working.
Given his life expectancy was 80, wrote the author, he could afford to retire.
It was probably the worst advice anyone has ever got about finances.
What the author, who made lots of money selling books to the unsuspecting public, failed to understand was life expectancy is measured at birth. That is, on average, a male Canadian would, at birth, be expected to live to be 80, strictly based on the averages (this was a few years ago; the number may be different today).
The "expert" didn't have the statistical knowledge to understand if you live to be 65, you'll likely live beyond the statistical life expectancy because you've dodged a lot of bullets by then. You didn't get leukemia as a child, or get hit by a car as a teenager, or get struck by lightning on the golf course, or succumb to a heart attack in your corner suite.
If you're healthy at 65, you could live to be 95, and that extra 15 years could bankrupt you if you're not working.
Financial advice is abundant, but it's not all created equally. Often, the most widely followed pundits are the worst; they may write well, but their glib advice can mask a damaging lack of expertise.
Another pundit appeared in a prestigious financial publication this week -- he's a former chief economist at a big bank -- arguing we are entering a long period of economic stagnation -- growth of one per cent in the developed world.
"Where should investors park their cash?" the interviewer asked. "Cash" said the expert. "You might only get half a percentage point, but it's better than nothing and with no growth, the equity market is no place to be."
Once again, pretty poor advice, at least in my view. You don't need growth to get value of out of equities, particularly in Canada, which is home to many companies that are publicly listed but don't grow much at all. Remember, the more a company can grow, the more of its profits it will reinvest in its business to earn more revenue and profits in the future. Most CEOs love to grow; it's exciting and it means they can employ more people and earn more money and have more influence.
Eventually, though, they admit there's no growth left so they start paying out more and more of the profit to shareholders in the form of dividends. There are many companies on our market that pay out all or almost all of their profits to investors. Some of these businesses are pretty stable; meaning they're not economically sensitive, or not much. And yet they pay dividends of six per cent or more.
Now they are riskier than cash. But are they six or seven times riskier than cash? Because they'd have to be to prefer cash over these no-growth equities. I think this expert is dead wrong. You can't save earning one per cent; you can't eat if you're retired and on fixed income. And you don't necessarily have to. Of course, you have to be careful. But if you take the care, you can come out ahead in equities, and to suggest you need growth to venture into stocks is foolish.
The problem with many investing or financial-planning experts is they don't make their money investing. They make it selling books and giving speeches. They don't necessarily understand the plight of the average person.
The moral of this story is to take what they say with a grain of salt.
Fabrice Taylor is author of the President's Club Investment Letter.