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.

TSX March 14, 2020

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…

TurboTax 2019

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

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, we're inching closer to our ultimate goal - owning a 7-figure investment portfolio for semi-retirement. We're almost there! Subscribe and join the journey. Learn how I'm getting there and how you can get there too!

30 Responses to "Weekend Reading – COVID-19 destroys stock market edition"

  1. Will be interesting to see how long this downward trend continues. Recession, yes and the market lows may be tested several times before it recovers.
    I’m not investing or adding to our holdings, other than reinvesting our dividends. I expect our holdings to continue to pay their dividends and expect most will raise them as expected. We’ll have to wait to see. Either way I do expect our income to continue to grow.

    Reply
    1. I think you are right. This is likely going to be a multi-quarter journey vs. a few weeks of volatility. I hope I am wrong.

      I will keep you posted on our income journey of course. Please do the same!

      Reply
  2. It’s been a wild ride all right. The de-cumulation strategies are SO much more complicated than the accumulation stage was. I’d love to hear more about strategies people employ once retired for a few years. Are your yearly expenses trending downwards or upwards (and if up – how much of that is based on travel or other “variable” expenses) ? If I have my GIC ladder in place but need to use it now to prevent selling too low in this market, when things get healthy again, will I be able to sell enough off to replenish the ladder or will I get greedy and not want to lose out on more potential upside? Anyone willing to share how they’ve been able to ride out the troughs and perhaps what measures they put in place during the “lean” years?

    Reply
  3. Hi Mark,

    Again, I think you’re spot on. Regarding dividends, the numbers don’t lie. Depending on the time frame one looks at, dividends contribute anywhere from 30% to 90% of total return. If you are invested for the long term, dividends have a significant impact on your return. It’s simple math.

    Pulling from your message above, quoting Pereria, but first acknowledging that he has made a number of excellent points (such as the effect and nature of integration):

    “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.”

    This is hyperbolic, at best. Near-religious zeal? Please.

    “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.”

    This is an example of reductio ad absurdum. Are people generally claiming unicorn-like status for dividend investing? Absolutely not. Of course dividends are just one factor in an overall portfolio, and while they happen to be a rather large factor for me and others, they certainly are not the “be-all and end-all” considerations in portfolio construction and investing.

    Anyway, thanks Mark for the great reads.

    Reply
    1. I must say Will, it’s a bit annoying to hear various advisors say that but I suspect they do it for a few reasons.

      You could say hardcore indexers are zealots too but I try and avoid that language unless I’m annoyed 🙂

      As you say, and I’ve always mentioned on this site: dividends are a great part of total return but certainly not everything. There are many ways to invest and there is no need to label people who choose differently. You didn’t do that of course but our friend Jason did.

      All the best and stay safe these days!!
      Mark

      Reply
  4. Other than I don’t want anyone living closer than fifty yards away, my biggest problem with condo’s is you have that timeshare like annual fee that is almost as big as my house payment was before I paid off the house. As the owner of a 3,000 sq ft four bedroom four bathroom house, I have a total cost for property taxes and insurance of $330 per month and I pay utilities, all of which I presume I’d still have to pay as a condo owner, or maybe not. Does that condo fee pay for 100% of the taxes and insurance for your condo and its contents? If so then I guess it isn’t that bad.

    Reply
  5. Mark – revisiting a conversation we had a while back re holding mortgage in a RRSP.
    Your comment was…my portfolio went up more last year than a piddly 3% mortgage. I pointed out…in a $1M RRSP….a $300K mort..or 30% seems like a good diversification from equity
    Still feel the same way?

    Reply
    1. LOL. Good to call me out on that.

      Please tell me you predicted COVID-19 would affect the markets like that? 🙂

      Kidding aside, I know some folks who have their mortgage inside their RRSP but I personally don’t do it. I would rather have my dividend paying stocks and low-cost ETFs in there. It doesn’t make it totally right or wrong, just what I do, since I believe over many decades of investing I think I’ll get better returns from those assets than my mortgage/real estate. I also believe in diversification away from my condo/primary residence. That said, real estate has been very good in Ottawa over the last two years. That bubble might burst eventually as well.

      Did you end up holding your mortgage inside your RRSP? Do tell. Happy to hear about where I could be totally wrong and what you’ve benefited from!

      Cheers,
      Mark

      Reply
  6. It’s a dire time for sure. It’s not a very pleasant feeling to look at my portfolio down down down without no end. I began this journey at the end of 2017, quite late. So I am actually losing my principles right now, lots of them. The loss is on paper though, and I am not selling my investment.

    As I have 40% FI, I began to rebalance a little bit already. I was buying at dips. Most likely the market will go even lower but I feel I am already buying at a very good discount. I bought TD at $50.60, who could imagine TD would be at this low one month ago?

    This market crash is a big test for my investment strategy. I am still sticking to my plan and I will continue to buy more. It’s a big comfort to imagine in case I am already retired and at times like this, I can still get dividends to cover my living expenses. Dividends really matter when you don’t need to sell at a market like this but just waiting for money flowing into your account. The question is, of course, will the dividends still come?

    My recent purchases have much higher yields. Hopefully, I will continue to have enough courage to buy low even with the market lower. If my investment strategy proved right surviving this market crash, I think I can retire with great confidence and comforts. If not, well, we are still working, in our early 50s. I figure it’s still not too late to change the investment strategy and we could always work a few more years. Retiring at 65 instead of 55 is not ideal, but not the end of the world either.

    What will be the outcome? Time will tell. But I do think just like anything else, coronavirus will eventually pass.

    Reply
    1. Good job May. I would l would have bought a lot of TD at that price. I am out of the country, though, and don’t like to make too many decisions when away from home, plus I had lousy internet. But I may get another chance, who knows? I am happy with a 6 percent yield from banks.

      Reply
    2. You must be loving it with 40% FI. That’s why you own bonds – for times like this.

      I’ve got TD and all the banks DRIPping >3 shares per quarter so I’m not buying any more banks. I will be buying some U.S. equities though in the coming weeks and months. Likely MSFT or ITOT ETF. Those are my top-2 choices right now.

      “Dividends really matter when you don’t need to sell at a market like this but just waiting for money flowing into your account. The question is, of course, will the dividends still come?”

      I am hopeful myself but of course if things get very bad, some dividends will be cut. It’s responsible for management to do so.

      The virus should pass in the coming months but I think it really depends on how well we contain it now. The most vulnerable I worry about.

      Stay safe,
      Mark

      Reply
  7. The thing about condos and strata properties is that you pay dearly for not having to bother with any of the maintenance outside your unit.
    Of course many want this, they choose a condo/strata property for that very reason. But you need to realize that you are paying perhaps triple or more for work being done, vs if you had contracted the work yourself for your own home. Condo/Strata boards hire from a limited number of companies and these companies know they can quote excessively high.
    So that is why the monthly fees can be so terribly high. If you are considering a purchase, make sure to have a good look at the financials. Look at the total costs in different areas and divide by the number of units to see what each unit is paying for snow removal etc. Or the per hour cost of said item. You may be in for a big shock. Fees typically do not cover property taxes. And in addition you need to purchase your own insurance to cover your liability and any damages within your unit, or that your unit causes another unit (ie if you have a flood and it affects a neighbour). Total insurance costs will be much higher than on an owner-occupied home.

    Reply
    1. Condo ownership certainly isn’t for everyone Barbara. Fully agree. But I do feel we made a good decision. Who know in the coming years if it will be a great one.

      Our neighbours are unfortunately moving, very nice couple. 1,500 sq. ft. 3-bed unit is going for $1.1 M. I won’t be surprised if they get it in our Ottawa market in the coming week.

      Mark

      Reply
      1. A great thing about condo living is when you travel you lock the door and leave. No lawn to cut, no snow to shovel, no gardens to weed etc. Have a neighbour pick up the mail and check the freezer. Love it!!!!

        Reply
      2. Yes, I was really just commenting on the financial aspects, because sometimes the condo/strata fee just seems so high.
        I live in an area of single family homes, but at either end are 2 strata developments of bungalows (some with walk out basements), one is actually gated…..and another of 2 storey townhouses. Over the years my kids have delivered papers to these (with my help due to the hills) and I have walked my dog through them often, as they abut the mountainside with its trails, so I have gotten to know many of the residents. While a number of them are older retirees who like to just go and leave for Palm Springs (or wherever), some are younger and were just tired of looking after their single family home. And a few have young kids, I suspect that these typically are women after a divorce who just can’t do it all.
        These bungalows are always in high demand and sell very quickly for good prices. I suspect their fees are high as the landscaping is immaculate and they are private roads so have to contract out the plowing.
        But you just cannot leave one of these without shutting off your water supply and draining the lines. Just the same as leaving a single family house.
        Hope you get great new neighbours, boy that is a very high price for Ottawa. We had some lovely neighbours across the street, an older couple, so friendly in a huge house. House was so big it was hard to sell and a numbered company bought it. No one has lived in it for over 3 years (they did try to have a multiple rooming house) and they have left the front yard to go to waste, sigh….Also had an illegal huge sign (3 x 6 feet) up advertising their company for over a year, no one complains but me.

        Reply
        1. Ya, I don’t think there is any home or condo you can simply just “leave” for insurance purposes. My parents have been great to house sit/cat sit for us when we travel abroad. I like people in our place at least every few days for insurance reasons alone.

          I will keep you posted if the neighbours sell their place. They should.

          Single family homes in Ottawa go for >$1.5 and closer to $2M in some areas. You wouldn’t believe it. Even a tear-down is >$500k, a total gut job.

          Mark

          Reply
          1. I read something interesting yesterday about selling your home at this time. It was mentioned that some are taking their homes off the market, because they didn’t want a bunch of people traipsing through and touching things and potentially spreading germs.
            Now I am thinking about my son giving notice on his expensive apartment in Toronto. Can he say that he only wants any showings when he is home and thus can watch that they don’t touch anything? I am not too up on the rules in Ontario. Since he was a baby, he got sick so easily, all the time. By end of September every school year (and university year) he would catch something. We had two grads to go to this spring, but both will probably be cancelled.
            Nice that you have parents close to you! That is something that money can’t buy.

          2. I think the neighbours down the hall had by appointment only during the open house, meaning only one couple at a time through the unit re: COVID-19. The realtor disinfected the door each time and asked folks not to touch anything.

            Yes, very nice to have my parents in Ottawa. We’ll see if they need any support during this crisis – hopefully not but you never know.

            Stay safe,
            Mark

  8. Hello Mark,
    thanks for the great article ,
    the market has gone insane the past couple of weeks with the double whammy the virus and the oil war but hey i guess we could use a change from seeing our portfolio always in the green and who says no to stocks on sale 🙂 i have 40% of my portfolio in bonds which i sold some shares and bought some US ZDY with it and I’ll be buying some more of that in the coming weeks .
    as for condos and condo fees i bought my first one when i was 19yo and now i do own three of them , yes the strata fees maybe annoying but for a guy like me who doesn’t want to be mowing the lawn in the summer every few days or cleaning the sidewalk from ice and snow ( although here in Vancouver we barely get any ) every penny of those fees is worth all that pain.

    Lets hope this roller coaster ride in the market will end soon and if not i’m going into the toilet paper and hand sanitizer business because they seem to have better profits these days then stocks 🙂

    Reply
  9. Loved the Charlie Munger video – especially the part where he says if you cannot stomach large drops in the market you shouldn’t be in the market!

    Reply
    1. Indeed. I mean, 50% would be a killer drop for sure. Not many could stomach that but I have no intention of selling anything I own.

      Post to come about how I intend to deal with market correction!

      Mark

      Reply
  10. This is mainly a reply to Concerned’s post but for general consumption. It is also directed a bit at all the arrogant indexers that think their way is the only way and slam dividend investors.

    This background stuff is a bit of repeat so I’ll keep it short. I’ve been retired coming up on 7 years without a company pension and my wife was stay at home and is still under 65. We live off our dividend income & my OAS and CPP..

    We transitioned to dividend income/growth investing in 2013. When the dust settled, we decided to only invest in TSX listed dividend income stocks in 5 sectors – banks, utilities, midstream, telecom, and REITs. We have absolutely no fixed income other than a couple year cash buffer.

    Our dividend income is more then 2.5x what we need to live on so lots of extra cash coming in. This means we should never have to sell anything and we plan on just holding everything unless something significant changes with an individual company.

    I think this is the ideal scenario as we never have to worry about stock prices or running out of money. We got to this point by just buying good dividend paying companies for the long term. I never made a huge salary and we were a single income family so I think this is attainable for a lot of people. We always did everything we wanted to do but just happened to have really inexpensive activities – mainly outdoor stuff with lots of camping, hiking, biking, x-c country skiing, running, etc. We also did all the over-seas travelling we wanted to do before I retired. Now we just tour/camp in western Canada and the western states.

    Anyway, I always say each to his own and I think it’s never very polite to slam someone else’s approach.

    Ciao
    Don

    Reply
    1. “Anyway, I always say each to his own and I think it’s never very polite to slam someone else’s approach.”

      Well put and respectful as always Don.

      I personally believe as long as you are meeting your goals and income needs, that is key and who is to argue with that. Certainly not me. Others might 🙂

      Best wishes and stay safe.
      Mark

      Reply
  11. Interest rates dropping to ZERO in the US and will Canada follow? Regardless, holding fixed assets may seem like your protecting your capital but in the long run you’ll lose out. I know what I’d be doing if I still had GIC’s or bonds.

    Reply

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