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(Kip Frasz)
(Kip Frasz)

Ex-broker knows indexing's value Add to ...

Garth Rustand

Age: 55

Occupation: Ex-adviser, now executive director of Investor-Aid Co-op

Portfolio: iShares Canadian Universe Bond Index, iShares S&P/TSX 60 ETF, iShares S&P Global 100 ETF.

A little history: There have been enough takeovers and mergers in the brokerage industry that Garth Rustand joined Midland Doherty as a broker when he was 30, and despite never leaving, ended up working for a total of five different firms. In 2002, he stopped being a broker and left what by then had evolved into Wood Gundy.

Why He Stopped Being a Broker: When U.S. brokerages moved into Canada, he says, they brought the American model of "basing everything on proprietary product," such as wrap accounts. The upside for brokers, he says, is the trailing fees were often double what they'd receive for selling outside funds. And that, he adds, made it hard for brokers to fulfill their pledge that they would put the fiduciary interest of their clients ahead of their own.

Since leaving, Mr. Rustand, who lives in Nanaimo, B.C., has been busy founding the Investors-Aid Co-operative of Canada (investors-aid.coop). As its mission statement says, the goal is "to provide members education, publications, online tools, and discounts that help ensure low investment costs and fair returns to its members."

How He Invests: Mr. Rustand follows the advice he lays out in his book, Investors-Aid Guide to Protecting Investment Returns . The main thrust is to stick with indexing. He has about 20 per cent of his portfolio in fixed income via the iShares Canadian Universe Bond Index Fund. The remainder is divided equally between Canadian equities with iShares S&P/TSX 60 ETF and international equities through iShares S&P Global 100 ETF.

"Not only are those companies the biggest and most likely to survive downturns, they typically have a history of increasing dividends."

Best Move: Buying bond coupons - the "stripped" part of strip bonds, in which the bond itself is sold without its interest-bearing coupons at a discount to its face value - in 1989 and 1990 paid off nicely for Mr. Rustand. "They had huge returns and were completely safe." Another benefit was he could look at his statements and see the end price, which helped reinforce the value of holding them.

Worst Move: "It had to be tech stocks in 1989," Mr. Rustand says. "They were all generating so much excitement and they were all going up so much." How does he guard against making the same mistakes again? "I just don't buy individual equities any more. It takes the emotion out of it. I know I'm not going to invest better than the benchmark and if I do, I'm not going to beat it by much, and then there's the cost, risks, and the low probability [of success]"

Advice: "People pay far too much in fees on their investments.," he says. The irony, he notes, is that if you worry about cost, you end up with high-quality investments, and "it's the crummy assets that charge high fees."

Want to share your strategies? E-mail tony.martin@sympatico.ca

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