Monday, September 29, 2014

Not a correction, yet, but a pullback for sure

My portfolio is down. It feels like it is down a lot but it really isn't. If one is going to invest in the market, one has to be prepared for setbacks and I was prepared -- mentally and financially.

Most of my holdings pay a nice dividend and the solid cash flow is very comforting. I have confidence in most of the dividends and as long as the monthly dividend train continues I can live with both downturns and corrections. I think of a correction as a pullback of 10 percent or more.

Take my wife's tax free savings plan. It doesn't have a lot of savings in it at the moment. I sold my English roadster, a Morgan Plus Four, and deposited $15,000 from the sale into a registered tax free savings plan taken out in my wife's name.

I bought 500 shares of Dream Office REIT, D.UN, a REIT involved with the rental of commercial space. The share price was up for most of the past year but today it is down. Yet, despite the loss in share value, my wife's account is up almost 6 percent. Why? The monthly dividend is why.

Overall, the market has been absolutely wonderful since I left the work force. Today, thanks to the increase in portfolio value over the past five years, I can get by with removing less than the 4 percent which is commonly accepted as the safe removal limit for RSP savings.

Recently I have read a lot about not putting too much faith in dividends. I don't follow this reasoning. In my situation, as a retired fellow with a retired spouse, dividends allow me to live without being forced to sell any stock at low prices and thereby lock in my losses.

Most downturns and corrections are short-lived. They are over and the market is back in growth mode in a matter of months. In my case, I can wait almost five full years before I must start taking out the government mandated withdrawal amounts.

With such a large time buffer, I continue to sleep well at night and that is the biggest test of all.

p.s. If D.UN drops enough in price, I may pick up another 500 shares.