On episode 18 of the podcast, I’m joined by The Globe and Mail’s Rob Carrick, who I think is the top personal finance journalist in Canada.

When I made my living as a financial writer, it was always difficult to stay relevant to investors. That was especially true when my audience included people in different circumstances: what’s useful for a retiree with a seven-figure portfolio might be meaningless to a millennial just getting started. Moreover, when you’re under pressure to crank out new material, it’s easy to give in to the temptation to write about every new product or fad that comes along. Rob Carrick has overcome these challenges as well as anyone: although he’s been writing about money for some 20 years, he’s never lost his edge.

In our conversation, Rob shares his experience as an investor advocate who understands that DIY is a great option for many, while also acknowledging that most people probably need some kind of professional help. We also discuss whether Canadians in their 20s are better off than their parents when it comes to careers and investing, and we round things out by touching on one of Rob’s favourite topics: our love affair with home ownership.

The taco bar of index funds

In the Bad Investment Advice segment, I consider a recent article in the Wall Street Journal called The Personalized Index Fund’s Time May Be Near [subscription required].

The article opens with the line, “Someday soon, your favourite index could be, literally, ‘the index of your favourite stocks.’” It describes how investors may soon be able to use software to establish a set of rules for screening, selecting, and then purchasing a portfolio of stocks based on whatever criteria they choose, thereby creating a “personal index fund.”

One of the expert sources in the article compares the process to ordering at Chipotle: “All of the ingredients are out there,” he says, “and you order whatever looks good to you.”

This all sounds wonderful, but it’s highly misleading to suggest that it has anything to do with indexing. There’s another name for screening for individual companies that meet your chosen criteria: stock picking. Using software to implement your idiosyncratic strategy is really just building your own actively managed fund.

Betting on the favourites

The episode wraps up with an installment of Ask the Spud, where I answer a question from a reader who wonders why he shouldn’t invest in ETFs that focus on robotics, AI, electronic payments and other emerging technologies. “With such a clear economic trend towards automation, I can’t see why investment in sectors like these isn’t warranted,” he writes.

This is a great question, because the idea is so eminently reasonable on its surface. Why not focus your investments on the sectors and businesses that seem poised for growth? Surely the tech sector is likely to see brighter days than, say, bookstores and movie theaters.

The problem here is that the market already knows this, and therefore the price of any stock reflects investors’ expectations of what the company will do in the future. Companies like Tesla and Amazon, for example, don’t have lofty valuations because they’re making huge profits now—they’re not (at least not consistently). The price of these stocks are based on what the market expects from these companies going forward. If they ultimately fall short of these expectations, the stocks may turn out to be a poor investment. Conversely, a company with a bleak outlook might surprise investors with results that were mediocre, but still better than anticipated, and the stock might benefit from a big bump.

Larry Swedroe has compared this idea to betting on sporting events. If you go to Vegas to wager on a ball game, why wouldn’t you just pick the favourite to win? Why would you ever pick an underdog? The answer is easy: because the bookmakers set the odds in such a way that you need to bet more on the favourite than on the underdog to win the same amount of money. The sports betting market—like the stock market—efficiently factors in all available information when it sets these odds. Knowing the Yankees are better than the Blue Jays, for example, does not give you any advantage when betting on a game between these two teams.

The lesson, then, is clear: rather than picking individual sectors, just buy the whole market with a broadly diversified ETF. And then bet on the Blue Jays.