Weekend Reading – Dividends in a downturn and retirement crisis edition

Weekend Reading – Dividends in a downturn and retirement crisis edition

Hey Everyone,

Welcome to my latest Weekend Reading edition where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.

I’m looking forward to hitting the driving range today and going for a bike ride. You?

via GIPHY

Earlier this week, I shared this financial goals update. Overall, I’m very happy about how our year has gone to date considering the havoc COVID-19 has triggered. I feel very fortunate overall.

That post comes on the heels of this financial independence update whereby I believe we have an outside shot of reaching one of our major financial goals in the coming year or so – market returns willing of course. Until that day comes, I’ll keep doing the same things I’ve always done when it comes to our portfolio:

1.Keep savings for investment purposes (striving to max out contributions to our TFSAs and RRSPs) automatic.

2. Invest in primarily dividend paying stocks from Canada and the U.S. 

3. Turn on DRIPs for our dividend paying stocks – to earn more shares commission-free every month and quarter. 

4. Rinse and repeat.

Although we’ve experienced some dividend cuts of late, this simple process has churned out some great income results over the last decade since I’ve been a dedicated DIY investor:

April 2020 Dividend Income Update

I’ll be posting my May 2020 dividend income update soon.

Until then, enjoy these weekend reads and see you around the site. I look forward to your comments!

Mark

Weekend Reading

Headlining this edition, I thought I would answer a reader question (wording only slightly adapted for the site):

Hey Mark,

I follow your site often. I read a reply a while back about an investor who’s financial adviser might not have him invested at his desired risk profile as he expressed concern about a pending downturn.

Well, here we are!

However, I’m wondering why in that particular reply you did not directly address the question of whether a dividend stream DECREASES in the event of a mild-to-moderate economic downturn?

Could you answer a question or write an article about that? Do you have a “bucket” strategy you are going to employ to buffer any downturn?

In MY dividend investing, I’m using a “bucket” scheme, but a major assumption (and explanation to my partner!) is that while equity will take a beating in a market downturn, my dividends will continue to roll in – or at least mostly roll in with a few cuts now and then – given that my dividend stock choices are in things that people are ‘stuck’ with even in a downturn.

Consider communications, utility bills, gas for the car, food and drugs – or am I wrong?

My equity component CAN take a big beating (for about 18 months!) before I’d worry.

Can you talk about dividend portfolio resilience in a future article?

Thanks very much.

That’s a great topic to write about and I intend to do just that in the coming weeks. Maybe I’ll post a few articles around that theme. Stay tuned!

While the COVID-19 triggered market crisis has been a challenge to navigate, I haven’t sold a thing. Sure, my dividend income is down (a bit) with dividend cuts incurred inside my taxable account and our TFSAs in particular, but overall, our dividend income is UP over last year. 

I attribute that to RRSP contributions and investments made inside those accounts AND the fact that I’m DRIPping almost all my stocks every month and quarter to earn more shares commission-free. 

Do you have a “bucket” strategy you are going to employ to buffer any downturn?

I will, just not fully implemented now in my working years.

In this article I wrote about how much cash we intend to keep to start semi-retirement. I still feel even with COVID-19 impacts that seems to be a great starting point. 

So, in my financial future, I’m absolutely going to employ some sort of “bucket” scheme to weather any major market storm while protecting my capital.

That said, I do, like you believe while my equity holdings will take a beating in any prolonged market downturn my dividends will continue to roll in – for the most part.

I too, invest in things that people are ‘stuck’ with. I figure:

• People like the internet, so I own telcos like Bell and Telus. 
• People like to heat and cool their homes, so I own utility stocks like Fortis, Emera, Algonquin Power and more. 
• People need drugs and last time I checked, they like their healthcare, so I own Johnson & Johnson.

You get the idea!

Here is a recent article about some top stocks to own to weather COVID-19. Let me know your thoughts! 

In the meantime, I will definitely consider some articles about that theme on dividend resilience.

Thanks for your questions!

Here are some great reads

5i Research wrote about the market not being the economy.

Dale Roberts told us the traditional balanced portfolio barely felt a thing during the COVID-19 crisis. iShares XBAL is a great all-in-one product to consider for investors who want some bonds sprinkled-in with some stocks for a balanced long-term no-fuss investing approach. 

You can find my article on the best all-in-one funds to own along with a host of other top-notch ETF articles on this page here. 

While XBAL is one of my top all-in-one funds to own I think if you’re in your 30s or 40s, I would suggest you go for more growth. A balanced fund or balanced allocation is likely more suited for those nearing retirement.

When it comes to growth, in fact, a reminder that iShares just recently released a 100% equity fund (XEQT) to consider:

Image courtesy of iShares.

Retirement Manifesto legitimately wonders if we/the U.S. are facing a major retirement crisis. This stat boggled my mind:

• 45%

“The percentage of Baby Boomers who have nothing saved for retirement according to research from the Insured Retirement Institute.”

The Dividend Guy wrote about some stocks that might be worth owning given their share price has plummeted. 

Dividends Diversify highlighted UPS as a stock to own.

On Financial Independence Hub there was a good reminder about withholding taxes not driving the investing bus.

Have a great weekend!

Mark