Ever say something that later turned out to be really, really dumb? Like when Bill Gates said in 1981 that nobody would ever need more than 640k of RAM? Or when the Iraqi Information Minister said that there were no US troops near Baghdad, just before the city fell?
Or like when I said to my wife only a few months ago- “3% return? We could do much better than that in the market. Even the lowest risk stocks could give us that kind of return.”
Pretty stupid, eh? I’m fairly certain you can blame this entire market crash on me or, more specifically, the god of finance (I call him Financor) punishing me for my insolence.
I’ll admit that in some ways, I got lucky- we divested a good portion of our portfolio in July before things really started to tumble. I’d like to say that it was prescience on my part, but it really wasn’t- it was pure, dumb luck. It’s even luckier that brokerage problems prevented me from reinvesting as quickly as I had planned. I’m no guru, and I’m not going to offer advice on how to survive the current market turmoil, but I will share the strategies that I’m currently using to get through this period:
- Focus on debt repayment - The best way for me to improve my net worth at this point is to focus on reducing my student debt and mortgage as much as possible. While I’m still setting aside money for investment and savings, I’m going to be reallocating to increase my debt payments and reduce my non-registered contributions. If the economy does fully tank, being debt free (or at least closer to it) will be of more benefit to me than a floundering portfolio.
- High Interest Savings Accounts- For cash on hand, I’m a little reluctant to go pumping any serious amounts into the market at this point. High interest savings accounts are looking to be a good place to park money until things settle down a little bit and I decide what buying opportunities I’d like to take advantage of (see #4 below). Icici Bank of Canada and ING both offer decent rates, as do most of the major banks. Maybe 3% ain’t so bad after all!
- Recession-proof stocks - I’m an increasingly big fan of those boring but solid blue chip stocks that show regular dividend growth and seem to be able to weather just about any economic storm. My stalwart has been Altria, the holding company for tobacco giant Philip Morris. It pays a decent dividend (currently ~6.4%) with reasonable dividend growth, and has been relatively stable throughout this turmoil. Even when people lose their jobs, can’t pay the bills, and worry about losing their homes, they still stop by the corner store to pick up a pack of smokes. Investing in Altria was part of my push to diversify my stock holdings, and I’m inclined to increase my position while share prices are depressed. David Berman at the Globe and Mail recently recommended Procter & Gamble and Coca Cola as stocks that also fall into this category.
- Bargain hunting - I’m not convinced that we’ve hit market bottom yet, but there are still some excellent buying opportunities out there, especially given that I’m quite comfortable to buy and hold for the long term. With the market plummeting, I’m researching certain sectors and individual companies and getting ready to buy at bargain prices if the right opportunity presents itself. I’m not looking to time the market and accept that we may see further declines, but for the longer term this may be a smart time to buy.
- The ostrich approach - As for our current holdings, I’m just sticking my head in the sand and trying not to check the ticker every few minutes to see how much I’m down. The companies remain stable despite tumbling prices, and I’m not prepared to start selling off my stocks any time soon. Things may get worse before they get better, but I see no benefit to panic selling and taking the losses at this point. After all, I haven’t actually lost any money until I sell. Or so I keep telling myself.
I’d love to hear what strategies others are adopting as well.
Photo by samlustgarten.
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{ 7 comments… read them below or add one }
I don’t know if there are any stocks that are really “recession proof”, just those that will be hit a little less hard. I refuse to buy Philip Morris, but there are other ethical choices that could give you the same returns without costing your soul
Very good points.
If I felt more experience in analyzing stocks I would go with dividend paying value stocks.
Speaking of Phillip Morris, how do you decide whether to buy stocks like that? Does it seem like you’re supporting/ making money off of an evil giant empire of death (not that there’s anything WRONG with that…), or do you figure that people make the decision to smoke on their own, and they’re going to do it whether you invest or not?
And what do you think in general of investing based on ethics rather than strictly based on returns?
Interesting point, AllisonWonder. Despite the number of traditional “sin stocks” in my portfolio, I do tend to invest in what I consider an ethical manner. I guess my ethics are just a little different from others. Altria / Philip Morris is a company providing a legal product to willing consumers in a very heavily regulated environment. In fact, I find it easier to invest in tobacco and alcohol companies than I do to invest in companies that make money from the oil sands. My wife disagrees with me on this, so she’s free to invest her money in unicorns and kittens if she chooses
With that said, I generally won’t invest in a business if I find their product or practices to be reprehensible, just as I won’t give money to organizations that I don’t agree with. That’s why I refuse to donate to any charity or church that opposes legal recognition of same-sex marriages, for example. Then again, they probably wouldn’t want my dirty tobacco money anyway!
Great article MGL!
I happened to come across this blog and I really like your thoughts on dividends!
Maybe I can get you to do a guest post on how your investing habits have changed since you “found the light” haha.
I think I’ll invest in lollipops and rainbows, myself.
Love that photo! It really captures the moment!
I sold all my long positions before the big downturn and won’t go back in until I think were near the bottom.
I’m currently shorting the TSX 60 Index with a little with HXD.TO. You can find my Canadian and US Stock Market forecasts on my blog.