Weekend Reading – Financial lessons learned from COVID-19 – so far…
Unprecedented times…I hope you’re doing OK out there through it all…
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.
Financial Lessons Learned from COVID-19
You know, you learn a few things after two decades of investing. I started getting into investing (seriously) when the tech bubble burst 20 years ago. 10 years later, the global financial crisis hit and wiped out many investors in its wake. I started this financial blog around the same time. It was designed around the premise to be my own financial advisor, to chronicle lessons learned, my thoughts about investing, share what I’m doing better and become financially wealthier for it.
Now, some 10 years after that started, COVID-19 has essentially flattened economies.
But you know what?
I’ve learned things will eventually get better. Stock markets will rise again, eventually. This too shall pass!
While stock market declines in general are indeed, painful, I also see opportunity. I see a HUGE opportunity to learn from our current events. I see an opportunity to embrace the long-term tenets tied to financial wealth-building. I see opportunities to curb your financial behaviour for the better going-forward – to help deal with future crises on any similar scale. Who knows, this could happen again…
Headlining my Weekend Reading edition I thought I would offer a few quick personal takes on what financial lessons I’ve learned (so far) from this COVID-19 pandemic. I’m sure I’ll have more to write about on this subject in the coming weeks.
1. It still sucks to see your portfolio value crumble
You don’t have to tell me it’s a great time to “buy low and sell high”. Or, in my case, “buy low and keeping buying over time”. I know that. But it still sucks to see your portfolio value down tens of thousands of dollars – sometimes in ONE day.
2. Dividends are never guaranteed – ever
A recent announcement about Inter Pipeline cutting their dividend by 72% (not a typo) is a great reminder of this fact: dividends, while very good, are never guaranteed long-term. I say this even though my thinking about dividend investing remains unchanged.
On the positive side, many of the stocks I own continue to pay dividends. In fact with lower stock prices now available, dividends reinvested are buying even more shares for me commission-free than they did before. You can read up on how dividend reinvestment plans can help you build wealth here.
3. Even if you have an emergency fund – have a little more
I’ve highlighted the reasons why my wife and I have wanted an emergency fund for about 10 years now, and we realized our goal by maintaining this much in our account about 4 years ago.
I cannot imagine not having this fund maintained at this level, just in case…
If anything, I want to keep more cash on hand as I get older, and I’m trying to work on that over time.
How much cash should you keep?
An emergency fund is important because you never know when a true emergency strikes. Insert COVID-19 here. I feel for folks with a large Home Equity Line of Credit (HELOC) who are now out of work and have used their HELOC as an automatic teller in recent years. While HELOCs are OK for short-term debt (such as a few months), owning long-term debt as part of a HELOC is simply not wise. Sadly, many people are going to learn a very, very tough lesson about this during this crisis…
Like I mentioned above, I’m sure I’ll have more reflections in the coming weeks.
Thoughts on these as a starting point? Any financial lessons you’d like to share with me? Comment away!
Earlier this week, even with markets down some 20% from previous highs, I stayed the course.
In fact, that means buying in the coming months while saving more cash on hand across various accounts. As guidance and support through this COVID-19 crisis, here are some thoughts for inspiration (because nobody is perfect at this financial stuff including yours truly):
How to get through a stock market crash – and benefit from it
Stay safe, stay well, and see you here next week,
Other cool reads
Seems like my pick is holding up rather well in Roadmap2Retire’s annual stock picking contest. So far, so good!
Here are six personal finance ideas that have been blown to pieces in this COVID-19 crisis.
MoneySense offered some advice to retirees wondering now what in this crisis.
Boomer & Echo highlighted how he’s managing his money during this financial crisis.
Ben Carlson, who manages portfolios for institutions and individuals at Ritholtz Wealth Management LLC, also shared how he’s managing his money during at this time. Smart reminders about his approach to long-term stock investing:
“I’ll be a net saver for the next 20-25 years. I’m not going to touch the majority of this money for decades. Stocks are on sale. This is a good thing for my savings. It’s painful for current holdings but wonderful for future balances.
If stocks go down more I’ll be buying more.”
Cut The Crap Investing offered some advice on when to embrace a stock market correction.
Dale Roberts also offered his definitive list of Canadian dividend moat stocks to buy and hold. I hold all seven myself. You can see highlights of what I own in my portfolio for growing dividend income with time here.
Regardless of what the stock market is doing, A Purple Life is still planning to try and retire, in her 30s, in the coming 5 months.
Reader question of the week (adapted for the site):
Hi Mark !
Quick question for you this week. Being a relatively young investor I was thinking about selling my non-registered portfolio which consists of VEQT. I bought it at $27. It was close to $21 recently!
Should I stick with this? I was thinking that if I sell some VEQT now I can buy it back when the market goes up (at least historically it does after a crisis). Let me know if I have good reasoning! I’m just getting started with investing and this is my first big crisis to buy!
Thanks very much and have a good weekend Mark.
Well, great idea to buy and hold VEQT. It’s a great low-cost fund I’ve written about a few times. In fact, buying more VEQT over time is GREAT way to get started with investing and build wealth.
Young investors can get wealthy eventually by doing these five things! (Hint – click the link for a FREE ebook).
Owning VEQT for the coming years if not decades is a GREAT idea. Not so great idea, (my opinion since you asked!) is to try and time the market. I don’t know of any expert who can do this successfully. So, don’t even try!
This is how I’m working through this COVID-19 stock market crisis and how you can become wealthier too.
Happy investing and thanks for your readership.
In closing, here is some inspiration from Sam Roberts, how we can hopefully stick together/since we’re all in this together and get through this viral pandemic. Great song, great band. I hope to see them again when they tour to Ottawa next time. Enjoy the solid music and video.
Love Carricks comment about buying the “littlest house you can get away with”. This pandemic will be a major reset for the world and hopefully Canadians will learn to be better with their finances, particularly saving more for these dark days. I like your three step safety value plan. Finding ways to create stable cash flow options to pay the bills is vital. Reflect and evaluate is so important. Learn, adapt and keep moving forward. IPL cut cost me 6-7% of my dividend income but <1% of my total retirement income. Don't plan to sell anything.
Stay healthy everyone.
I like Rob’s stuff generally, he’s getting more blunt with his wording over time. I like it.
As for the IPL cut, yes, <0.4% of my dividend income so I’m FAR from worried. If my dividend income went down by 20% I would be a bit concerned but then again, I’m a net buyer now. I’m in my asset accumulation years. This too shall pass.
Stay tuned for my next post – how I’m preparing for a global recession.
Stay well please!
I don’t want to sound too pessimistic but I doubt most people will learn anything especially with the gov’t and my taxes bailing them out. If anything, they will probably learn that the gov’t will always save them so no need to worry about savings.
I know there are some legitimate cases where some people are just low income earners and that makes it difficult to stay afloat but I think most cases are people just spending on crap they don’t need and living beyond their means.
I also like Carrick’s house comment. My wife and I are still in our same starter, family, and retirement house that we bought in 1982 and paid off in 1991. No need to downside for us. 🙂
Don, I grew up in a home that wasn’t all that big for 3 kids. Two bedrooms and one bathroom upstairs and my brothers had to share a room in the basement, where my Dad added a shower. A very big and spacious living room, however. My Dad always used to say, once we were all moved out, “see I am glad we never moved to a bigger house, now I don’t have to downsize and can stay here”.
I loved the first house my hubby and I bought. Really loved it. But it was way too small to have children in, so we sold and bought one much bigger, after initially wanting to build, even had bought the blueprints (still have those!). Never loved the bigger house and for years the first house would pop up in my dreams.
NIce that you are still in the same home! 1982 was a good year to buy, low prices but very high interest rates. New houses had huge rebates offered by both federal and provincial governments.
I can certainly relate to your childhood house size. I grew up in a 3 bedroom house with 5 other siblings. We just used bunkbeds and put a bed in the basement. We were all more than happy.
On 1982 being a good year to buy for prices, it actually depends on the time of year, Unfortunately we bought in Nov, 1981 and moved in Jan 1982 and didn’t get any gov’t assistance at all. By summer, our house price was down by 40%. As I said to my wife: “the house price only matters if we sell and we aren’t going to do that” (and never did).
We did have the 20% mortgage interest rate though. The combo was what motivated us to put as much towards the mortgage as we could afford. That ended up working out really well with killing the mortgage in 9 years.
There are certainly legitimate cases where some low income folks will significantly suffer through this. Cutting back for some isn’t the answer – they are already there. The income is the issue and they are trying their best.
This is certainly a time for reflection, for me included.
Back to you, smart stuff about the house. You seem to be very fortunate and have done well.
Do take good care,
Mark, I look forward to your Weekend Reading posts and updates. Somehow it is soothing to have the stability of routine. So thank you.
I tend to try to have too much information and get overloaded with news stories. Way back when I was working (for pay) I had to do that, but now I should rid myself of the habit. But everything was/is just moving so fast.
The important thing for all of us is our health and the health of our friends and family and even strangers, of course. Stay safe everyone and take this seriously. Surprisingly, there are some who do not, think they must watch Fox news. My hubby had never seen the movie Contagion, so we watched it last night. I had seen it about 4 years ago on an airplane and had thought “oh, not a good one to watch on a plane”. Now it is so close to reality, at least we haven’t had a breakdown in social order.
Thanks Barbara. We certainly haven’t broken down social norms (yet) but I wouldn’t put anything past that orange monster and what he can provoke!!
You guys doing OK through all this?
Maybe my comment about breakdown in social order was too soon, because this morning I read about the guy who rammed the security guard at a Walmart in Quebec. Totally shocking. Let’s hope for no repeats of that sort of thing.
Yes, thanks we are doing okay. Just back from our 80 day, 13,300 kilometre trip to Mexico, so are now in our quarantine/isolation stage. Which isn’t much different from my regular boring life here. We drove our own vehicle, so were fairly isolated from others during our trip back and luckily were able to buy one litre of hand sanitizer and used it whenever we had to touch anything going through the USA.
Some relatives had suggested we were better staying in Mexico, but things were starting to shut down completely by the end of our trip, so that wouldn’t have worked well. Things changed so fast–on March 16 I was counted in the Mexican census, by a guy who was going door to door to get the statistics, it was a long form type with many questions, so a lengthy interaction. Only a couple of days later we were in Tequila, where everything was shutting down and we were lucky to get the last tour offered by the one distillery remaining open for its last day, and then it was even hard to get a restaurant. Its a lovely town, btw, so hope we can return sometime.
As is my nature, I spent yesterday calculating the cost of the trip, the different categories of spending, etc. After deducting the savings from having my home utilities reduced and what we would have spent on food, liquor and gasoline at home, the cost of such a trip is very affordable. About the same as many spend on a 2 week vacation, I think. I love all the eating out and now have no inclination to cook dinners.
I think some social orders will breakdown sadly…it’s coming. I just hope it isn’t too bad….
We’ve started to cut back in some areas and I’m trying to be a net buying of stocks right now in advance of any global meltdown. I hope it doesn’t come to that of course. I’m hoping a few more weeks of isolation and working from home, such that by mid-May we can start getting a bit back to regular global business…we’ll see.
This is not a sprint.
I didn’t sell during the financial crisis and I haven’t sold during this one either. In fact I bought more shares of Fortis with my tax refund. Following the advice of yourself, Darryl Diamond and Fred Vetesse, I have 4 years of expenses in a high interest savings account and GICs supplemented with a bond ETF. This helps me keep the panic at bay as I am now retired. My investments are now in dividend paying blue chip stocks and a couple of US ETFs. Selling in lower markets doesn’t seem like a smart move to me. I still plan to live for a while yet, during which time the markets will probably recover. In the meantime, the dividend income should continue. Keep up the good advice Mark. Stay safe at home everyone.
Great to hear Jan. I haven’t sold a thing. I have one dividend cut in my portfolio to date (IPL) and there could be more. But, I’m buying now and going forward. I recall IPL represents <0.4% of my entire portfolio. It’s meaningless it if goes to absolutely zero (I hope it doesn’t for many reasons).
I hope to eventually have ~1-years’ in cash + dividends > expenses + part-time work for semi-retirement. I will also have a future pension as well.
I think a blend of CDN dividend paying stocks + a years’ of cash + U.S. ETFs is largely bulletproof as long as income is > expenses.
This too shall pass.
Off to our terrace soon to enjoy a few beers. At home! 🙂
Stay well Jan,
It’s interesting that almost everyone suggests developing an investment strategy, invest as much as you can, diversify, buy low or at least when stocks are undervalued and stay the course.
But, along come a crisis and everyone panics, wonders what they should have done better, looks for ways to protect their capital, wonders why they didn’t have more emergency funds and are concerned about what to do next.
No real panic here cannew, just an acknowledgement that I could have more cash on hand to a) invest or b) to have on the sidelines for such emergencies. Knowing my portfolio and net worth right now, as long as I have my health, I’m very, very fortunate. 🙂
Hmmm, is everyone panicking? I think if you didn’t wonder what you might have done better, you aren’t really thinking about things at all. One should always evaluate what they have done and learned from experiences.
For myself, I remember well the feeling in 2008. My money was being handled by an advisor and I was out of the country attending a family wedding when things really went south. I hated that feeling of loss of control. I now am much happier managing my own assets.
Recently I have kept a very large amount of cash. In early January I was starting to feel very foolish and thinking I had made a big mistake. So I have not panicked. But I have some stocks that have declined 90 percent…..I’ve been out of the country, so just haven’t looked and tallied up my paper losses. At a 90% drop, don’t think they will ever recover.
Not everything recovers of course. I bought Manulife (MFC) in my RRSP before the 2008 crash–it was rated as a great buy–and it has never come back to black. I always kept it in that portfolio, glowing red, amongst the bank stocks that had great gains later on, to remind myself of what can happen.
Fully agree about reflection and evaluation of.
I don’t keep much cash beyond my emergency fund but I certainly need to consider something different for “next time”. I’m likely going to start putting a plan in place in the coming year to start saving towards my 1-years’ worth (of basic expenses) in cash. Once debt-free, that should be safety value #1.
Safety value #2 will be continuing to work in some capacity to maintain a solid income stream for a few years to come.
#3 will likely be some form of GIC-ladder or other to enter semi-retirement with. That’s 3-5 years away and I have time to put that structure in place. Otherwise, I will keeping my portfolio of dividend paying stocks and low-cost ETFs. Only one (1) dividend cut so far and it has been rather insignificant in the big picture, <0.4% of dividend income stream. Hardly notice it 🙂
All the best,
Mark, the coronavirus has caused me to rethink aspects of our financial plan:
– With the drop in equity prices, our asset allocation went from 70/30 (equities/cash and bonds) to 65/35. After quite a bit of internal struggle, I decided that rather than rebalance the portfolio, I would reset the target allocation to 65/35.
– Our 35% fixed income includes a $10K cash emergency fund; it was $5K before the outbreak.
– We’ve firmly settled on having at least five years worth of fixed income available to draw from when we enter retirement. Previously this was just three years.
– We’ve not yet seen a need to adjust our retirement income goal downwards, but it’s always good to have another move or two should things deteriorate further.
Having what feels like our finances under control, or at least a firm plan, all we need to do now is stay well and come through this alive. On that point, we have recently had our wills professionally drawn up, so we’re good to go on that front too!
Stay in and stay well
Smart stuff Bob, but I’m biased, since I think these times really allow us to reflect.
1. Outside our pensions, we’re 100% equities. This crisis has definitely taught me to have more in cash. Will try my best to work up to 1-years’ worth in expenses in the coming decade.
2. I actually might consider bonds as I get older or a GIC-ladder, as a portfolio stabilizer. Not sure yet.
3. In terms of dividend income, overall, we are up!! But, with my only dividend cut to date that I report (coming up March vs. Feb.) that report will show I am down by a few hundred bucks. Oh well. No biggie.
Excellent point on wills. Ours were done a few years ago and likely due for a refresh.
Well thought out Bob and continued success living through this mess. Stay well.
Thanks for all your wisdom and comfort during this wild ride.
You mentioned “GIC-ladder” in your reply to Bob. I searched your site but couldn’t find any reference to it.
Could you enlighten?
On the to-do list to write about Craig! You can see the concept I am speaking about though in this post. Using a GIC-ladder to largely protect vs. a major, prolonged stock market decline. Have a read and let me know what you think.
I hope to write a detailed post about GICs, GIC-Ladders, other, in the future.
All the best Craig.
I am hoping to read the article you linked here but the link is going to the MoneySense article (which was very good, BTW): “Here are six personal finance ideas that have been blown to pieces in this COVID-19 crisis.”
Fixed, thanks for noting the link error. Made a couple of mistakes this morning and apparently needed more coffee!!
Writing this as I move into my second cup of coffee … thanks for the list of articles. The G&M article is great. It’s nice to see sound advice that helps people reset perspectives. I’ve had $700 car payments in the past; i much prefer $300 car payments (and even better, no car payment on one of our vehicles). The focus on building emergency savings is spot on.
Thanks Mark. Be well.
Yes, car payments can be wealth killers. We haven’t had a car payment for many years now and don’t intend to have one for a few more ideally. We hope to pay cash for our next car again in another 3-5 years. That saving goal will likely start in 2021 for that.
Just wrote you back!