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.)

 

Stocks I would consider holding in a conservative portfolio

The following are all stocks that I would consider holding in a conservative portfolio. Note: I personally do not like bonds at the moment but if I was going to enter the bond arena I'd look at the ETF ZAG. And now to the stocks:

ALA
BCE
BMO
BNS
BPY.UN (This one is actually a little dicey but I like to take a gamble now and then. It's fun.)
CM
EMA
ENB
FTS
H
IGM
NA
NTR
PPL
RY
T
TD
TRP
VIU (an ETF for international exposure)
XRE (an ETF for REIT exposure)
XUS (an ETF for U.S. exposure)
XRE (an ETF for REIT exposure)

There are other stocks that one could consider but this is the list that I settled upon. To keep things simple I would just divide my investments equally between all the number of stocks purchased, except for BPY.UN. I'd only put half as much in the Brookfield offering.

Lastly, if you will need some ready cash, keep enough cash to meet your anticipated needs for two years. Two years maybe a little much as these stocks will, as a group, if they don't cut the dividend, yield more than five per cent annually. Do your own calculations but make sure that you do some and then keep the cash you calculate you must. Don't get trapped into selling low.

By the way, I find a spread sheet, like LibreOffice, a great help in managing a portfolio.

Cheers!

This may not be the time to permanently exit the market.

I'm writing this for my niece. Why? Her married daughter and her husband saw their investment shrink by about $5,500 and they got out. Was their move wise? The short answer: I don't know.

Purple line with dots is my portfolio. Cash holds its value in crashing market.

You see, I got out of the market. I had lost a chunk, I looked at the coming coronavirus tsunami and the simmering petroleum war between OPEC and Russia and I cashed in my chips.

Within days the market was in full correction mode and racing for bear territory. If I had stayed fully invested I would be down in the six digits. Some of my junior oil holdings would have lost 90% of their pre crash value.

Maybe I should have held onto my cash, waiting for the dust to settle but I'm a firm believer in the "you can't time the market" idiom. After a good solid drop, I put half my money back in the market. When the market was deep into a bear-driven frenzy,  I put almost all my remaining money back into the market. Then, I sat back and watched the value of my portfolio shrink.

But bear markets do not just drop. They bounce. And each time the market bounces it often returns almost to its previous highs. Hence, the advice: "Buy on the dips and sell on the rallies." This can work but more often than not buying on the dips, buying quality, and holding patiently is an even better rule to follow. It may take years, but it will come back. Patience.

How is it working out for me? Look at the following graph and you tell me.

The purple dotted line is my portfolio. The blue dashed line is the Canadian market and the red dotted line is the U.S. one.

Let me leave you with this thought: COVID-19 is a virus. It is here and quickly becoming endemic. It is of most concern to seniors and those with certain pre-existing medical conditions. The curve will flatten but not return to zero. Until a vaccine is available, there will be an ongoing background noise of a small amount of illness and, sadly, death (of mostly seniors). There is no easy exit ramp in sight. The economy will bump along for a year or more. Don't bet on a quick fix as folk like Donald Trump are promising. They are talking pipe dreams!

A one fund portfolio. How's your advisor doing?

Note the big loss in 2016. Losses are a part of investing and part of a well managed retirement portfolio.

Warning: The figures in my little post came from a spreadsheet and the TD historic figures for TDB622. I cannot swear by them. They are close, I'm fairly sure, but without an editor, errors are more possible. The point I am making is valid. Whether my figures are completely accurate is open to question. Cheers!
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Do you have a financial advisor? An expert who guides your portfolio into the best investments carrying the least risk. I don't have one. When I did, I could not afford the losses.

Let me give you an example and then you can compare it to your experience.

In my example, a fellow has an RRSP at retirement His wife also has an RRSP. He retires at age 60, taking a buyout. He has a total of $500,000 to invest or with which to buy an annuity. When told an annuity would only deliver $26,000 annually and it would not increase one cent with inflation, he put the money in the TD Monthly Income Fund (TDB622).

Unfortunately, he needed money to live, and so he was forced to immediately remove $26,000 from his buyout money to live. He invested the remaining $474,000 in the TD fund. It was an amazing year. The market was recovering from a serious bear market. Come Jan. he cashed units worth $26,343.20 to raise money to live. It was his portfolio and he was going to increase his payments with inflation. The remaining mutual fund units were left in the fund. He told the bank to apply the DRIP approach to his account.

He continued doing this annually until January 2020 when he removed $31,333.51 to live. This made him smile. If he had gone the annuity route he would still be drawing only $26,000 annually. Life would be getting very difficult if he had purchased the annuity as so many had advised.

He started the year with a mind boggling sum: $698,790. And then the coronavirus hit and the Saudis and Russians got into an oil war. By mid March his portfolio had shrunk to $685,220. He wasn't worried. You see, our senior was a bit of a nerd despite his age. He knew it would take about $602,565 today to buy what $500,000 would buy back in 2009. No matter how one calculated it, even with the great loss, he still had a comfortable amount of money.

He knew he'd have to lose more than $80,000 to be back to where he was when he started. Would he lose another 12 per cent. It was possible. But then he'd lived through a decade of the ups and downs of the stock market while owning TDB622. One year he had actually lost almost $55,000.

This bear was going to consume more than he would have thought possible but that's the market. When he got to worrying, he had only to think of 2009 and 2010 when the market was climbing back from the disaster that was 2008. He was confident the bull would return given enough time.

Don't panic. Learn.

As you may know, I'm a senior and I'm retired. My pension 1s very poor. It wouldn't pay the annual rent on a one bedroom apartment in the city where I live.

I took an early retirement and had to accept a 25 per cent cut in both my pension and CPP payments. Why the cut? Without an income, I had to start drawing on these five years earlier than planned. Sadly this was still not enough to balance our books and my, who is younger than I am, was also forced to draw on her CPP early and she took an even bigger hit. And these hits are permanent.

We turned to the stock market for income and began buying stocks and ETFs. Thanks to the bull market which just stumbled, we have balanced our bills with ease for the past 11 years. When I retired we had a portfolio worth x-amount. We have drawn annually on our savings for the past 11 year, and yet, before the bear market began clawing back our gains, we had a portfolio more than 60 per cent larger than when we retired.

My wife and I are managing our own investment portfolio. We have self-directed TD WebBroker accounts. We do not have a financial advisor. Why? I gave almost $4,196.71 to a London Life financial advisor back in 2000. When I retired, it took some effort but I got 75% of my original investment back or about $3147.53.

The source of that investment was money that I had accumulated in a London Life annuity policy. They came knocking and promising and I fell for the spiel. If the money had been left untouched, it would have been so much better for me, but not for them. They received an annual management fee for this costly, to me, fiasco.

I've made some other bonehead financial moves, more than I can address in this short essay. But, I must say that I have always landed on my financial feet. I've learned paper losses can be managed if you keep alert and have a modicum of luck. Note the mention of luck. Never discount luck. Always position yourself to be in place financially where a lucky outcome is expected.

What has amazed me over the years is the consistent flow of poor quality of investment information filling the financial pages of our newspapers. For instance, never sell but weather a bear market. Simply hold on, ride it out, and it will recover. I call this advice incomplete.

Check the chart on the right. The purple line with heavy dots is my portfolio. The two other lines are Canadian and American markets. While all the usual market trackers were diving, I held a straight course. Why? I had sold my equities and gone to cash.

Clearly, this was a winning move in the short term but staying out of the market indefinitely is fraught with danger. A big danger is, as the usual advice warns, one risks being caught offside when the bull returns.

And so I put half my funds back into the market when my investments had entered true correction territory. I immediately lost thousands. Sounds bad and in one sense it was; I lost thousands. But, as a percentage loss my loss slashed by half by the fact that half my porfolio was still in cash.

Think about it. If you have a hundred thousand dollar retirement account and you enter the market when it has already corrected, your losses are zero and the market losses are10 per cent or more. If you only invested half your cash and it dived toward bear territory in tandem with market, you would lose $5000 immediately. The market would be down a full 20 per cent or more but you would be down only five per cent.

I have never seen this pointed out in any newspaper account detailing what happens during a market collapse.

With the market in full bear market mode, I invested the vast majority of the second half of my cash holding. Like the first money, this second round of investments dived as well. I lost thousands more. A reporter who doesn't understand the market might very well be reporting that I was now caught in the middle of financial blood bath. Oh pooh! This isn't all that bad at all. Do the math.

You are down by five per cent and double your holdings. You now have $95,000 invested in equities. You lose a further five per cent or $4750. You have lost a total of $9750 from a $100 thousand portfolio. You are down 9.75 per cent. But the market is down 25 per cent.

Your investments have not even entered correction territory. And, as is par for this course, the next day the markets take a bounce. This is a screen grab of the gain my portfolio made immediately after the bear market buy.

The info on the left only applies to one of my portfolios. The other portfolios all  performed well. One was actually up 13.7 per cent while another was only enjoyed an increase of 3.68 per cent. For this reason we will only claim only an overall recouping of six per cent. But again, do the math. You are now down only about 3.75 per cent while the media is reporting that retired seniors are facing financial disaster.

Facing a disaster? Maybe. Maybe not. You have almost all your money back but, let's be honest, it is all in paper gains. In the coming months of potential financial turmoil you may well lose at least ten percent of it. Maybe more. But, and it is a big but, your dividend has taken a big jump in real, hard cash. Your portfolio now contains far more stock. Each additional share, and you have hundreds of additional shares, each one pays a nice dividend.

My dividends, for example are up in the five digits. I fully expect to see dividends cut. I can afford it. I have built a cushion into my portfolio.

It is not unreasonable to believe you may realize a dividend yield of about five per cent, or better, calculated using the projected income and your total investment. If, like me, you can squeak by with a dividend income as low as 3.5 per cent for a year or two, you can weather a cut in your dividend income of about 30 per cent.

If you have kept a little money on the side to supplement your dividend income for a couple of years, you are in good shape. Headlines like the one on the Financial Post will not make you lose sleep. And remember, bear markets do not last. Some are as short as three months. Others may last as long as three years. In the end, all are followed by roaring bull market that climbs halfway or more to its former highs.