Recently one of my friends, an exceptional advisor in Sarnia, Jeff Burchill, wrote to me irate about some things said in an article by David Trahair.

Essentially, Trahair (search his name online for an assortment of articles about him) makes one bold and controversial statement: "Put your hard-earned savings only in ultra-safe GICs – and rest assured that you are earning returns on par with those in the stock market."

Trahair wrote a book called Enough Bull: How to Retire Well without the Stock Market, Mutual Funds, or Even an Investment Advisor, because he was tired of hearing from people who have suffered financially because they followed  "traditional" retirement planning advice. He believes the problem is compounded because people believed they had to invest in the stock market to make the elusive 8-10 per cent a year return to build their retirement savings quickly. As a result, many have been devastated, especially many seniors who have little time to make up for their losses.

Trahair goes on to present data to back his claim that people who invested in stock markets would be no better off than people who invested in GICs. I'd like to offer some thoughts on the data and the comments.

Firstly, I would agree with Trahair that too many people have been over-exposed to the stock markets and it has especially affected people who are approaching retirement or in retirement. I wrote an article awhile back about the Retirement Risk Zone and the problems that arise from being over-exposed to the stock market approaching retirement. I think this is the major reason we have seen more and more people in the last 10 years delay retirement or go back to work – because of the stock market. Essentially, having too much money in the stock market means less predictability and control over your own retirement. It's all a case of timing, so how lucky do you feel?

I would agree that as you near retirement, you need more predictability and should invest more of your money in GICs and other guaranteed investments, but going full tilt might be a little extreme. One of the problems with Trahair's data is something I call end-date bias, which means that the most recent data is skewing all of the results, even the long-term results. His data represents a snapshot in time that happens to be a period when stocks did not do all that well. A different snapshot like the end of 1999 would show a very different picture.

The other concern is a statement he makes that is overgeneralized: "As you can see, GIC returns seem to be competitive – in the long term not much lower than the TSX Composite Total Return Index." The data he talks about shows the difference in compound returns over 10-, 20-, 30-, 40- and 50-year periods. The smallest difference is the 40-year period where the S&P/TSX Composite Total Return Index outpaced GICs by 2 per cent. The biggest difference was the 10-year period where the stock market outperformed the GICs by a whopping 6.1 per cent. How can that not be significant?

Burchill is quick to point out that 1.5- to 2.0-per-cent difference on a $10,000 investment per year can mean over a $500,000 difference over time.

Anyhow, I think the key to success is finding balance based on your personal needs and circumstances. I think that the closer you are to needing the money, the more conservative you need to be. I also think that GICs tend to get a bad rap not just because of the low-interest returns but maybe because there is more compensation in other managed products.

I know a lot of advisors who are exceptional and sell GICs because it is the right thing to do even though they do not pay a lot. I also know some advisors who won't touch GICs mainly due to compensation.

I think you should be careful with Trahair's controversial message. While the underlying message has some merit, it may also be a little extreme.

Jim Yih is an advisor, author and a syndicated columnist. For more information visit jimyih.com or retirehappy.ca. This article appeared in the Fiscal Agents Money Management newsletter.