Is the worst over?

My portfolio is the purple line with the large dots. The other two lines are the U.S. and Canadian markets.

It is April 8th and the markets have closed. The worst is over for the moment. Oh, I fully expect there will be more dips to come but it is hard to believe we will revisit the incredibly deep recent low. The only thing louder than the roaring of the bear was the roaring of the media.

Surely, you read the stories  about the "massive losses" suffered by those retirees who foolishly were too exposed to the market. Their portfolios needed more bonds, more cash, with the goal of diluting the volatility of the market.

"One dividend that always pays out and increases with time is knowledge," I read in a BNN piece. I wanted to raise my hand. I know another: Canada's biggest banks. They promise to never cut their dividends. (Instead, the issue more equity.) But, as a retiree investor I don't care. All I care about is the dividend and it will not be touched. Why did the writer not have the knowledge to know this?

I have a friend who is preparing for retirement. He says he is going to start playing in the market. Gaining experience. He's put about $20,000 aside for this purpose. He's read he should not be in the market with money he is not prepared to lose.

What an awful attitude. But he is simply repeating the standard advice the experts are pushing on television and in print. Never, absolutely never, approach the market with the attitude that losing money is O.K. It's not.

Some smart journalists should sit down at a table, six-feet apart, and brain-storm the question: What are the words and phrases relating to investing that should be investigated and possibly redefined? For instance, a BNN story equated risk with investing. "Everyone should understand risk is inherent when it comes to investing."

Is this really true? The world is a risky place. Risk is the background noise of life. Put your money in a safe GIC and watch its buying power slowly drain away. Or put your money in a good stock. In a good company. Remember, you are investing not gambling. And also remember, bear markets do not last forever. Many investors had fully recovered from the effects of the 1929 crash in just four years and almost all were in the black by the sixth or seventh year.  (These are facts that are rarely mentioned.)

So, take on no risk and accept .6 of one percent on your savings. Or find some good companies that you believe can get through just about anything the world can throw at them and invest. I took the second path. And just see how my investments have done over the past few, short weeks. This portfolio earned 17.14%.

Heck, if I wanted, I could cash in my stocks, go to cash and remove 4% annually for the next four years. As it is, I will be taking a small part of my money off the table as the bull returns. I'm not greedy. Furthermore, I'll be ready to buy when the next dip or full correction occurs.

Let's start the brainstorming here. What terms should a good journalist investigate?
What is risk? (You might be surprised.)
What does the word growth mean when used as in growth stock, growth mutual fund, etc.?
Are bonds really necessary? They cut volatility but . . .
Is volatility always, or ever, bad?
Are corrections bad? . . . or good?
Are bear market worse? . . . or better?

There, you get the idea, make a comment. Go for it.

Now that IS crazy!

I'm in the market. I'm often told I am wrong to be in the market during retirement. Too much risk, they say. I've ignored the advice and done remarkably well. So, I thought what if I turn a spreadsheet loose on the problem.

Say I had invested $100,000 in the market. I divided the money among the top five Canadian banks. Why? Well, historically Canadian banks never cut their dividends and its dividends that I need. Then the market crashed leaving my portfolio valued at only $50,000.

This didn't happen immediately. It took a few months but when the dust settled I had only half my money left. Should I take my remaining retirement money and get out? Or should I leave it in?

Let's say it's going to take 10 years for my portfolio to recover. For simplicity sake we'll say my investment recovers five thousand a year for ten years. (I didn't really think this through as this meant that in the first year my investment would recover $5000 or ten percent of the remaining balance. In the last year, it would also recover $5000 but on a much smaller balance. Percentage wise my portfolio would be recovering more and more each year. Oh heck, let's accept that for the moment. After all, this is only a fast spreadsheet calculation.

So, leaving my $50,000 in the bank stock, it grows at a constant $5000 per year for ten years and pays a dividend of 9% or $4500 dollars at first paid as 1.5% quarterly. Why is the yield so high. Because the banks don't cut their dividends. The cash amount remains constant but the yield number grows as the value of the investment shrinks. And over the years, as the value of the portfolio approaches its original value, the dividend yield will be back to where it started: 4.5%.

In truth, it is hard to see a portfolio of five solid banks taking ten years to recover. Three years would be a long time. And it is hard to see the banks not raising their dividends once or twice over a ten year period.

Put your money into an annuity, lock it in, lock in the monthly payment and sit back and watch that payment shrink. It will have lost a goodly amount in ten years to encroaching inflation. Put the money in the market at the wrong time, watch it shrivel and then watch it spring back in the coming months or years. Your annual payments will increase with time and at the end of ten years you will be glad you kept you were in the market.

Is this crazy? Impossible. Not really. I retired in 2009, and against all the best advise of the business page journalists with whom I worked, I put all my money in the market. ALL my money. A lot of it I put in income trusts. I bought BTH.UN composed of the top one hundred income trusts in Canada. I enjoyed a ten percent dividend.

It was too good to be true. The government put an end to the income trust game. But BTH.UN held quality units and it was very well diversified. The dividends continued, the price climbed back to where I bought in and I exited with more than I had when I entered. I had only used four percent to live and the remainder I had reinvested.

I tried to tell my former journalist co-workers about BTH.UN. They were not interested. No story there.

It is now 2020. I've been retired for eleven full years. My pension is peanuts and I need my portfolio to live. I remove what the government demands from my RIF every year. This coming year I must remove 5.4%. I will and I won't. I cannot afford to deplete my capital that but I must -- sorta. I will move 5.4% of my holdings in-kind into my TFSA and my non-registered portfolio accounts. That money will not be taxed until next year. There's no tax in the year of withdrawal on the minimum withdrawal amount.

To live I remove the dividends that have accumulated, up to about four percent of my holdings. Presently, I am making more than five percent in dividends but my dividends may get cut in the coming months. (I can squeak by on a 3.75% yield.)

I retired eleven years ago with X amount of money. It was an amount far less than the financial advisors told me I should have. Buy annuities I was told. I put the money in the market. Today, after living on my savings for eleven years, and after the recent collapse, I have my original funds multiplied by 1.6.

I still read stuff that is wrong in the paper and I still try to tell the reporters there are other ways to look at the numbers. I am not just ignored but occasionally blocked (on Twitter). Now, that is crazy!

(This post has been re-edited to correct a whole slew of truly stupid math errors. I need an editor, badly. There were some editors at the newspaper who were, as they say, worth their weight in gold. Some of the folk working at your daily paper are absolutely brilliant.)

What to do now? (Buy quality on the dips!)

I heard from a friend with some money in the market. They said they had to make some decisions soon about what to do with their investments. I wish I could tell them but I can't. That decision is theirs to make. But, I can share how I approach this quandary that faces every investor now and then.

At this point, one can either sell and accept the loss or stay the course and remain invested. With individual stocks, selling can be the right thing to do. I once foolishly bought some Yellow Pages stock. I wisely bit the bullet, sold the stock, took the loss and moved on. Yellow Pages never did recover.

It is far more uncommon for the market to crash and burn and not rise from the ashes reborn within a few months or years at most. In fact, depending upon whom you believe, even the 1929 stock market crash offered wise investors the rare opportunity to buy stocks at bargain-basement prices.

Mark Hulbert, writing for "The New York Times," suggested that an investor could have fully recovered from the 1929 crash in four-and-one-half years. Here's a link to the full article, 1929 Stock Market Recovery, in Zacks.

I've been in the market off and on since I was a boy. I've only dodged the bullet twice in my life. During every other decline I've been caught. Trapped might be a better word. I held on, accepted the volatility. The market goes up and down. Period.

How long it has taken the stock market to recover in the past.

If you are convinced our world of finance is coming to an end, bale. If not, stay invested and buy more stock in good, solid companies on the dips.

Stock market crashes are not one-time unique events. Although the media always reports these as one-time horrors. Google it. You'll learn that retirees are regularly losing everything in the market.

I'm a retiree. I'm in the market. Why am I in the market? I need the income and the market is answer.

So what has happened to me since the crash. I've lost money. Lot's of money. But my portfolio is better than ever. I took this as an opportunity to rejig my holdings. My income from dividends is up some 60% since the crash. If some of my holdings cut the dividend, c'est la vie. I can handle it.

And,  although I don't recommend it, I've done a little day trading and I'm up in the four figures. Retirees have time on their hands. We are a perfect group for doing a little successful day trading.

I may not be able to tell my friend what to do. Only my friend knows what keeps her awake at night. For me, it's locking in losses. I'm an optimist. The market goes up and down. I like to dwell on the ups.

At the moment, and I know this is hard to believe from the stuff one reads and hears, but many of us are making money in the market at the moment. Let me end this by sharing a diagram charting of my portfolios recent performance. My portfolio is the purple line with the big dots. Take note: a retiree's portfolio is NOT the market. (For a peek at stocks I like, see my post before this one.)