Weekend Reading – COVID-19 destroys stock market edition

Weekend Reading – COVID-19 destroys stock market edition

Just wow.

What a week…

It was busy at work and at home. One of our beloved cats had surgery and needed special care that was not accounted for. That will continue for a couple of weeks. But those issues absolutely pale in comparison to what is going on around the world…

Community events – cancelled.

Professional and amateur sports – cancelled and postponed.

Employees requested to work from home to the extent possible for the coming weeks.

Stay away from crowds and large gatherings in general. 

All of this rightly so.

We really have no defense against COVID-19 except striving to maintain good hygiene and avoiding any close proximity with others for extended periods. This should help reduce the opportunities for virus transmission. We hope. 

But we’ve been here before with viruses, somewhat…

I read the first cases of SARS (Severe Acute Respiratory Syndrome) were reported in Asia in 2002. From November 2002 to July 2003, more than 8,000 probable SARS cases were reported to the World Health Organization (WHO) from 26 countries. Canada was one of them.

In Canada, there were 438 probable and suspect SARS cases reported, which included 44 deaths.

(Source Global News.ca)

Based on my reading, no cases of SARS have been reported since around 2004.

Also based on recent readings, MERS (Middle Eastern Respiratory Syndrome) was first reported in Saudi Arabia some eight years ago. Since September 2012, WHO has been notified of 2494 laboratory-confirmed cases of infection with MERS-CoV.

(Source WHO)

Influenza is yet another contagious respiratory illness with symptoms that are similar to SARS, MERS and COVID-19. It is caused by the influenza A and influenza B viruses. Different strains of influenza are responsible for the flu season that occurs every single year. 

Influenza A (H1N1) virus triggered the 2009 global pandemic. An estimated 151,000-575,000 people worldwide died from the H1N1 virus in 2009. Of those, there were an estimated 12,400 deaths in the U.S. alone. This strain continues to circulate as a seasonal flu virus each year, but can be prevented with a flu vaccine.

A reminder to please get your vaccine people to fight that strain when you can… (Don’t anti-vaccine me. The science is working against you.)

(Source Centres for Disease Control and Prevention (CDC))

Stock market crashes 

The panic set off by COVID-19 really rattled investors this week. Within hours, both our S&P/TSX in Canada and the U.S. stock market crashed significantly. The circuit breakers were tested a few times on each market to avoid immediate collapse. I don’t recall this ever happening so much, so fast, in my investing lifetime.

And while “this time it’s different” rings true with any major market calamity (meaning the triggers for the stock market crashes and corrections are always different), I personally reminded myself this is actually quite normal.

What an outstanding video…for your reminder this weekend. Even just the first minute is worth a click. 

TurboTax Giveaways

My TurboTax Canada giveaway is closing in a few short hours and I will be contacting the three lucky winners this weekend! Thanks to everyone who entered!

Thanks to my partnership again this year with Intuit Canada, I’m preparing to giveaway 3 promotional codes to readers.

A reminder even if you don’t win this contest I have your TurboTax discount available (15% from me until April 30, 2020) to help you with your tax preparation needs this year. Just click the link below. I will be doing my taxes this weekend as I hunker down…

Weekend Reading

I shared my latest dividend income update here. With recent dividend raises and by reinvesting dividends paid last month, and no new money invested, we increased our projected dividend income this year by $300 in the last 30 days. 

Enjoy the rest of these articles including my reader question of the week below – and please stay well and safe. Wash. Those. Hands. 

Mark

Financial expert Alexandra Macqueen takes a deep look at defined benefit pension planning gone wrong – and what you can do about it on Cut The Crap Investing.

With recent stock market gyrations, readers asked me about the 4% withdrawal rule again and whether or not I’m keeping cash on the sidelines per se.

Here are some posts that cover those very questions including what I intend to do over time:

Does the 4% withdrawal rule really make any sense?

How much cash should you keep?

Smart stuff here from Stock Market Speculator in how to build a winning portfolio. I use XIU as my proxy for Canadian stock investing regarding what to buy and hold and reinvest dividends with. He uses different funds but for Canada, the philosophy is very similar:

“If you go look at the oldest and biggest ETFs in Canada (XIC, VCE) you will find a lot of banks, utilities and telecoms (sic) in their top ten holdings. Why not just buy a few stocks on your own? Ignore the noise and your brother in laws hot tips.”

(My brother-in-laws are very fine people for the record.)

Whether it’s skimming XIU or XIC or VCE, you can certainly own a few power-name stocks from Canada and then index invest everything else. That’s largely my approach and I know that’s what many other dividend-oriented investors do in Canada (to grow their income over time….) as well.

Check out that philosophy in The 6-Pack Portfolio.

On the subject of dividends, I see more writers and advisors argue “dividends don’t matter”. Some articles even discuss how I (and others invest) as a “junkie” – see below. Seems a little harsh but whatever, they are entitled to their opinions. From Jason Pereira, on the subject of dividends, taxation, integration and mental accounting:

“I have presented this argument to more than one dividend junkie, and I usually encounter nothing but resistance as the belief in dividends seems to be one that encourages near-religious zeal.

In the end, dividends are just one factor or element in your overall portfolio, and not the be-all and end-all unicorn-like source of tax-efficient income that most people believe. In fact, dividends are, in actuality, both irrelevant and inefficient.”

Fan and supporter of this site Jon Chevreau wrote about the trouble playing with FIRE (Financial Independence, Retire Early). As you know, I really don’t consider myself as part of this crowd although there are quite a few positives that come from some level of frugality and minimalism to realize financial independence. I like FI just not the RE part. I prefer FIWOOT and I think you should strive for that too!

Nobody in their 30s or 40s that I know of really retires per se. They just become entrepreneurs or work at some thing else as they please. Which is just fine. Just don’t call yourself “retired”. Go easy on your marketing and pushing products and services as well 🙂

Reader question…..(adapted for the site)

Mark,

Me again, still nervous. We are 59, I’m retired and my husband has 3 years to go with a very nice pension in his future. We worked hard to invest in our RRSPs during our younger years and we keep up with our TFSAs.

We downsized to condo 3 years ago (before you did in this post) and love it. We love the lifestyle.

But, I am stressed about the annual maintenance fees for a brand new condo that have gone from $380 – $680 in 3 years. That’s a lot. We are young…. they will easily rise to $1,000 plus in the coming decade or so.

Yes, the money will be there, but from a financial standpoint, this is crazy.  

Thus we are considering going back to a small custom build bungalow.

But we love it here….

What are your thoughts as I know you downsized to a condo also?

Thanks for your question.

Yes, we did move into our condo in June 2019. We love it here too. My wife was really the driving force behind our move back into the city. She wanted to be much closer (i.e., walking distance) to amenities such as food, shopping, restaurants and festivals. We are. We can pretty much walk to anything in the downtown core within 30-minutes.

For what it’s worth, our condo fees are just over $500 per month for a 2-bed, 2-bath 1,200 sq. ft. condo. That’s expensive for some of you I know but more on that in a bit. I know for a fact our condo fees will go up over time. Inflation will drive it up alone.

Like you maybe, we’ve budgeted for it. We will be relying on dividend increases and capital appreciation in our non-registered account specifically to cover our condo fees, for life. That account currently churns out just over $10k per year now and should continue to grow in the years to come (as it has done in the past). We are optimistic that my non-registered account income stream will cover our condo fees and utility bills as well. Those come in at last than $100 per month on average. 

That income stream and more details are part of these updates here.

Although some investors don’t agree with me, I feel by focusing on the income derived from our portfolio (vs. what our portfolio is worth on any given stock market day including the crashes!!), that gives me comfort in knowing we are saving enough to life the lifestyle we want. I will largely spend the dividends and distributions in the early years of our retirement. 

I will keep a cash wedge as well. You should too. 

Beyond my non-registered account, we will have RRSP assets to draw down in the early years of semi-retirement. With condo fees and condo utilities every month covered by my non-reg. income stream, I figure RRSP withdrawals in our 50s and 60s will cover condo property taxes and everyday expenses like groceries, meager car insurance costs and some entertainment.

Once the RRSP assets are gone, we’ll have workplace pensions to rely on, not to mention CPP and OAS to draw from in our 60s and beyond.

Through all of that, I will likely have some part-time work in the coming decades as well. Based on my FIWOOT mantra you can see I don’t intend to retire. I want to keep my body and mind active and engaged for as long as I can. 

All that to say, I think it really depends on your lifestyle and how you want to fund it. Condo ownership is very much a lifestyle decision. It certainly was for us again.

Sounds like your condo provides everything you need and as long as you have the income stream to support it, I would say enjoy it. Life is too short to dwell on what-if decisions.

A note that “small custom build bungalows” also have expenses over time. I suspect if you really did the math, you’d find the tally for home maintenance and improvement costs for any single family home (with time) are likely comparable to condo ownership albeit home ownership might be slightly less. Condos offer convenience and there is surcharge to pay for that.

Good luck with your decision and thanks for your readership!

Mark