This article was first posted November 1, 1999.
Retire Early found much to like in Dent's two previous books, The Great Boom Ahead and The Roaring 2000's and looked forward to his latest work. Unfortunately, we're disappointed. Harry Dent's Roaring 2000's Investor is a great book for people who haven't read his previous work, but offers very little that's new. If you've read the others you can skip this one. This will also spare those who favor "do-it-yourself" investing Dent's incessant advice to hire a financial advisor. The sentiment is understandable, however. Dent now gets up to $40,000 an appearance for making speeches to insurance companies and brokerage firms. We could hardly expect him to tell us to avoid doing business with these firms.
Retire Early thought it was best to get the bad part of the review out of the way. Despite the caveats in the paragraph above, there are some worthwhile things in this book.
The Roaring 2000's Investment Strategy
The chart on page 36 (a rough approximation appears below), "Economic Cycle and Investment Strategies," is an excellent visual summary of the Dent's advice. He thinks large cap growth stocks should do well in the growth boom from 1982 through 2008. He predicts that a 12 to 14 year long recession will follow, ending in about 2022. The accompanying deflation means US Treasury bonds would be the best bet during that period. Long-term buy & hold (LTB&H) stock investors will have a big decision on their hands: stay long in stocks or switch to bonds.
During the growth boom (1982-2008), Dent advises the following asset allocation:
The large allocation (32.5%) to financial services makes sense if you believe millions of people will flock to financial advisors. The growth of the Vanguard Group (the premier provider of no-load mutual funds) and the popularity of the Motley Fool investment site would lead to the conclusion that margins will narrow for high-fee financial service firms. Personally, I favor a heavier allocation of computer and pharmaceutical stocks.
Dent applies his trademark demographic analysis to most of the major countries in the world in Chapters 3 and 4. He does a good job showing why Japan is not the place to invest in Asia. His top picks in that region are Korea, Singapore and Hong Kong.
In Europe his top picks are Spain and Switzerland. Mexico and Brazil are the favored countries in South America. He says Israel is the best bet in the Middle East and found little investment potential in Africa.
Today, most of these investment books also give you "retirement lifestyle" advice and Dent's book is no different. Usually you'll see at least one memorable quote. Dent's appears on page 147 where he discusses the merits of giving something back to society if you've done well financially:
Certainly few people aspire to be assholes. But if being rich means you can tell the other assholes to go "screw themselves", there may be some redeeming social value in having a few bucks.
Deflating the Inflation Myth
Chapter 6 does a good job explaining why inflation won't be much of a worry and why the deflation expected after 2008 will present some investment opportunies to those alert to the situation. On this point, Dent's analysis is similar to what's found in Deflation by A. Gary Schilling. Dent advises shifting "your investments from equities to long-term, high qualiy bonds and successively into selective Asian and other international equities that will continue to have strong demographic spending waves. And after we see a major stock crash in the United States, around 2014 to 2016, small company stocks here will be a great investment." (p. 167)
Prospering During the Coming Depression
People who plan for the downturn will prosper, Dent writes, "perhaps even more than in the great boom. I once read that more millionaires per capita were created during the Great Depression than at any other time in history." (p. 169) Falling real estate prices and 3% mortgages should provide opportunities for investors with cash on hand or borrowing power. Perhaps the most astonishing prediction is that college costs will fall. Dent advises delaying matriculation until after 2009. Young people should opt to work instead while there are still jobs available.
Hire Yourself a Financial Advisor
Chapter 7 starts off with five pages of questions about investment topics and implies that if you can't answer most of them, you should hire a financial advisor. No mention is made of the fact that the majority of advisors (85% to 95%, depending on who's doing the counting) under perform the S&P500 index. There's no foolproof way to identify the 5% to 15% of financial advisors that might out perform ahead of time. Keeping your finances simple and avoiding the 1% haircut charged by an advisor still seems to be a winning strategy, though Dent disagrees.
I Don't Want to Pay Any Taxes
Dent's final chapter outlines some strategies for minimizing taxes. Building on his "hire an advisor" focus, he's a big fan of variable annuities (VA) and variable universal life (VUL) insurance. In his defense, he admits that the fees on these products are higher and you pay ordinary income taxes on earnings instead the capital gains taxes you'd be eligible for with an index fund in a taxable account. His rational is that you have to make portfolio changes every 12 to 14 years to follow his "demographics" investment strategy and these changes are best made within a tax-advantaged vehicle. Well, OK. That's true if you believe in "market timing." But long-term buy & hold (LTB&H) investors will still do better in a taxable account where they can benefit from paying taxes at the lower capital gains rate.
He also outlines a few schemes for giving your money to charity while spending it, too. Charitable Remainder Trusts and Charitable Foundations are mentioned as two ways to do this. Dent doesn't mention that you can also provide a charity with a 100% tax-free contribution by making them a beneficiary of your IRA while saving thousands of dollars in legal fees.