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Twenty years after his  first best-selling book, The Wealthy Barber, David Chilton is back with a new release: The Wealthy Barber Returns.

A few years ago, your book is selling well and you make the decision to remove it from the shelf and then you turn around and write another book, The Wealthy Barber Returns. Why?

The two are totally unrelated by the way. I pulled the first book long before I thought about writing the second one. I felt the first book needed a fairly significant updating to take into account things like TFSAs (tax-free savings accounts) and ETFs (exchange traded funds) and I wasn’t sure that I wanted to go back and rewrite it. There was something about retiring it when it was still doing well that was very appealing to me. I’ve never thought about changing my mind and even now with the second book, people are saying can you bring the first one back and I say no, I’m glad it’s retired. I like the second book better myself. Obviously everyone has a different perspective, but I’m glad it’s doing so well.

Right now, agriculture is a fairly solid place to invest. Some farmers find it tempting to plow profits back into the farm. From a financial planning perspective, is that typically a good idea?

You don’t usually want to have all your money tied up in one asset. That’s poor diversification, but by the same token you have to be realistic. The farm business takes a lot of capital, and when times are good it’s a great opportunity to reinvest in anything from machinery to land. So it’s easy for us non-farmers to sit back and say, “Hey, you’ve got to have a more diversified approach.” But when you’re the one running the farm, there are always capital needs. Return on investment can be relatively good if you know what you’re doing. So it’s hard to be critical, but in general, your point is a good one.

Overall, farmers are quite good with their money and don’t tend to live beyond their means. They tend to buy homes they can afford. I’ve looked at a lot of farm financial plans through the years, and I’m quite impressed. In fact, the last chapter of The Wealthy Barber Returns is only two pages long and is my favourite. It’s a story from about 20 years ago when a farmer came to see me and said, here’s my financial plan, and he could tell me the whole thing in seven sentences. It’s still one of the best financial plans I’ve ever seen. I think a lot of farmers intuitively use common sense measures quite well. They don’t believe in get-rich-quick and for good reason: it doesn’t work.

You talk a fair bit in both books about mutual funds. Has your opinion of that vehicle changed much in 20 years?

Yes. On two fronts. One, I think the fact that we can’t pick future mutual fund winners is very much in evidence. The vast majority of actively managed money products have to outperform the averages to be winners. It’s basic math. We can’t all be above average. If you outperform, I have to underperform. We are going to have a zero sum game in terms of performance and when you throw the costs in, most of us are going to underperform. Can you buck the odds and pick the future winners? There is no indication that any of us can. So that part of my opinion has changed. That’s why I think more people should use low-cost index-based products, a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the S&P 500.

The other issue is Canadian costs for mutual funds. We can’t afford to pay two and three per cent a year to have our money managed. Embedded in that cost is often an adviser, and if he or she is giving you good advice, that one per cent may be justified. However, if you are paying a combination of two and three per cent, especially in this market environment, it’s hard to justify that. Interest rates are less than the inflation rate and mutual funds are struggling because markets are struggling. So two or three per cent is a lot.