What does our post-pandemic future look like?
Over the last few weeks, this pandemic has really got me thinking about the many possible answers to this singular question. This pandemic has triggered a lot of thinking actually…something I’ll probably write more about over time.
I mean, while I did offer up a few annual predictions on this site in the past by no means was I completely successful nor can I accurately predict the future (although I did nail a few predictions now and then).
So back to the essence of this post: what does our post-pandemic future look like?
What do any guesses about the future mean when it comes to my investing approach?
Here are some random thoughts on a few subjects for today’s post…
I’ve always been bullish on healthcare as a sector to invest in. I’ve owned a few U.S. multinational stocks such as Johnson & Johnson (JNJ) now for over a decade.
You can read about that particular stock journey here.
I have no intention of changing that approach and if anything, I might try and buy more U.S. healthcare stocks in the coming years.
The way I see it people like their health or at least they want to be healthy. That desire is not going to change as long as humans walk this earth and this pandemic has clearly reminded people that health is the ultimate form of wealth.
What healthcare companies do I own right now?
I own the aforementioned JNJ – which is my top U.S. stock holding actually – that is nicely DRIPping 1 full share each quarter when dividends are paid. For years, I’ve used iShares U.S. Healthcare ETF IYH as an initial screen for some ideas although I’m indexing more and more inside my RRSP over-time.
Here are the top holdings in that ETF as of today’s posting date:
Here are the stellar returns for IYH:
Images courtesy of iShares site.
In our COVID-19 context, you should know the U.S. government in particular has already given Johnson & Johnson hundreds of millions of dollars in order to make its vaccine in an alliance with the Biomedical Advanced Research and Development Authority or BARDA. Read more here.
You can almost bet that JNJ and other major pharma players stand to profit very, very handsomely if, rather when, a COVID-19 vaccination campaign ramps up. We’ll see if the doses will be free to all American citizens if they’re used in a COVID-19 vaccination campaign, the U.S. Department of Health and Human Services did mention that.
Back to our financial plan, I hope to keep no single U.S. healthcare stock (or any U.S. stock for that matter) at more than 5% of my overall portfolio. In fact, I try and ensure no single stock every gets close to 10% weight in my portfolio. I do that as hedge against any individual stock risk.
I hope to go shopping for more U.S. healthcare stocks or U.S. broad market ETFs when more RRSP room opens up for me in March 2021.
For further reading: should I invest in taxable accounts? If so, what should I own where?
Economy and Workforce Changes
On a macro-economic and workforce scale, I could foresee the following occurring:
- Given our collective government COVID-19 debt-loads there will likely be vast unpaid debts that cannot be cleared in the coming decades. I have to wonder if some form of debt cancellation (given some people are literally sheltering at home through no fault of their own) will occur. Thoughts?
- People are loading up on gold – feeling markets are effectively broken. Maybe I’ll nibble myself. Thoughts on owning gold? Via Barrick or other major gold stocks? Indirectly via ETFs?
- This pandemic has triggered something rather unique I think – the ability to close the diversity, equity and inclusion gap on its very own. Given many companies can not only survive but potentially thrive without any brick-and-mortar office space, I have to wonder if we won’t see more women and therefore more gender diversity in the workplace. This would only be a great thing of course since traditional home care demands often fall on women but those demands could be more readily shared or sustained by the other partner in any work from home office environment(s) where couples are involved.
- With more people working from home, effective technology is going to be a huge enabler for these employees and managers to succeed. Sure, tech stocks have had their recent run (and it might not be over yet!) but the ease at which companies can install, use and gain near-term productivity from software solutions, whether that be cloud-computing software or other, cannot be understated. I think we’re about to see a huge boom in the software-as-a-service (SaaS) space in the coming years – potentially from companies that are just being thought of because of this pandemic crisis. Potentially the best way to “play that” is via a broad market low-cost ETF or even a technology sector ETF but the latter risk is higher. Thoughts?
- Staying on the work from home theme, I could see office REITs in particular being hard hit and needing re-purpose their buildings in the coming years. Thankfully, I have not historically owned nor do I now own much office Real Estate Investment Trusts (REITs). I do own a few shares of H&R REIT which cut their dividend a few months ago and that unfortunately shaved a few bucks from my dividend income; income thankfully on the rise once again.
- In terms of REITS I do like, although hit hard by the pandemic, I like the following retail ones and own these in my portfolio today with no intentions of selling, only buying more every month via synthetic DRIPs:
RioCan REIT (REI.UN)
RioCan has been a leading retail REIT in Canada; owning, managing and developing both retail-focused and mixed-use properties located in prime, high-density areas like Vancouver, Calgary, Toronto and here in Ottawa where I live. I especially like the tenants they have – leading businesses that we visit in a pandemic as well: Walmart, Canadian Tire, Loblaws, LCBO, Sobeys, Metro, and Costco. I think investors like myself, who are VERY patient with RioCan could do very well longer term.
Smart REIT (SRU.UN)
For similar reasons as with RioCan, I like SmartCentres REIT because they are focused on a mixture of urban, mixed-use, residential and industrial developments. Increasingly, they own locations as part of planned communities where people live (and now work), with ample parking areas and operations close to public transit. Although the yield for this REIT is a bit high right now for my liking (and therefore could be cut) I do see longer term value.
Thoughts on the REIT sector to own in Canada or otherwise folks?
- Another thing – unlike more diversity in our workforce which is great – we’re going to become more and more nationalistic as a society. With global supply chains tested during this pandemic, I will not be surprised whatsoever if we distance ourselves from other countries. I suspect there will a trend to manufacture “at home” and not depend as much on other people or countries.
- Short-term business travel should be dead. I mean, really, a one-day trip or workshop was always an absolute luxury before. Any company continually paying for short-term business travel in the future is likely out of their mind (not to mention on the path to becoming broke).
Personal and Other Changes
I would like to think for the better, we are going to see some of the following:
- Who needs a dedicated gym? Go outside to walk, ride a bike, pick up a winter sport or other. You don’t need a gym to be healthy and strive for better health outcomes.
- The need for personal touch or face-to-face interactions will likely take on a whole new meaning. Think about cultural norms like handshakes – is that really going to occur again like it used to? Maybe in a positive way we better understand the implications of our personal decisions and how they may impact others. Consider the underappreciated role of hand-washing. Improved coughing and sneezing practices abound. We now inspect and analyze how we stand near other people. Personal space is valued and appreciated.
- How much space do companies or for your home do you really need? That could go many ways. I mean, clearly, some companies have thrived without a brick-and-mortar facility for everyone to collectively go to each day. The inverse could be true for homes. Maybe you need a bigger house with a home office (or two); maybe working from the kitchen table every day is ergonomically unsustainable. Maybe you’ve downsized your home (like my wife and I have in a 2-bedroom condo!) only to find out you need some extra working space from time-to-time. Certainly no easy answers here since more real estate and more McMansion means more money to maintain. (For the record, we still enjoy living in our condo…)
- The lines are now completely blurred when it comes to privacy but maybe that eventually triggers some improved policy making and modern rules to live by. I mean, apps to track where you are with or without a COVID-19 diagnosis and public health may know about it? Where is all this going???
- Live sports might be moving to a live-subscription based model without fans. I would be OK with that in the near-term if it meant staying healthy. I mean, if surrounded by tens of thousands of people means a significantly higher risk of catching a communicable and potentially deathly disease – who is going to do that? Count me out.
- Hopefully we have all realized as much as we need to protect ourselves we need others to do their part and help us too. From frontline workers around the world and beyond, helping us get through this time, it is my personal hope we see how connected we really are.
What does our post-pandemic future look like?
As we look ahead, it’s hard not to imagine that some things must absolutely change. Nature has a way of shaking things up from time-to-time to remind us who’s really in charge.
When it comes to my investing approach, I don’t think very much is going to change. At least not now.
For one, I’ll still invest in U.S. healthcare stocks and likely a small basket of Canadian REITs.
Second, I’ll still own a few Canadian banks, utility companies, pipeline stocks and telecommunications stocks for income and growth. People need (and want to) borrow money, they want to heat and cool their homes, and without the internet or the internet-of-things we won’t be connected in a world that needs to be highly connected to function well.
I figure everything else, I should invest (as I do today) in a growing number of low-cost indexed Exchange Traded Funds (ETFs). This way, I can ride the market returns when it comes to technology, SaaS stocks or anything else futuristic that may dominate the cap-weighted market like the current tech giants are doing.
Beyond investing of course, we should never take the present day for granted. Balance is important to me and more so as I get older. Planning for the future at home, at work, and at play is important and a good life transferable skill but it cannot consume your actions. Life happens. Nature does its thing.
While physical health is always important, there will be challenges to navigate for all of us in the coming months and potentially years ahead when it comes to mental wellness. There will be long-term implications associated with this pandemic, that could be dealing with loss, loneliness, finding new ways to work, finding your personal ways to remain balanced, and much more.
Getting through this will take time. It may not be easy. The worse may be yet to come. We may however be stronger together on the other side because of it.
Hello. I really liked your article and it was interesting to know your opinion on this matter. As you correctly stated that “Nature has a way of shaking things up from time-to-time to remind us who’s really in charge.” and it really is. It also seems to me that health care stocks should continue to grow because people do not stop getting sick, besides, it is unknown what new viruses await us in the future. Regarding whether there will be huge unpaid debts that cannot be repaid in the coming decades, definitely yes, but debt cancellation is unlikely
Yes, Mother Nature is truly in charge. I do believe healthcare stocks will go up (much higher) over time. Stay well and thanks for your comments!
Hi Mark, I follow all your posts and the responses and find them very helpful. I would greatly appreciate any comments you might have. I am currently 69 and have $1.6 M in total investment assets. I have about $45,000 in RRSP room. I was trying to decide if it was better to invest the money in Cdn. eligible dividend growth stocks in my non-registered account or put the lump sum into my RRSP/RRIF (US/International investments) before turning 71 then spreading out the tax deduction over the following 5-10 years. I am going to have some claw-back either way when I take OAS and CPP at 71. One option is to reduce my RRSP and make non-registered investments however my RRSP is a better place to hold US/International investments and I can spread out the tax deduction. I guess this is not a bad problem to have but it is a difficult decision to make.
I enjoy your readership with others Nancy!
FWIW – this is how I invest in my taxable accounts and my take on asset location:
I’ve always said on my site (and in a recent podcast as well to be linked to next week here)…that having a tax problem in retirement (assuming you have good health of course) is likely the best problem to have 🙂
I know for our strategy in the coming years, we intend to smooth our taxes so some withdrawals from RRSPs in our 50s and 60s and part-time work to cover expenses. We keep CDN stocks in our taxable for the dividend tax credit but it makes sense to own non-payers and very growth oriented stocks there too.
I’ve always considered keeping the TFSAs for CDN assets and then the RRSPs with a mix of CDN but more over time, U.S. assets.
I can’t speak for you of course but I think it makes sense to smooth out taxes owing and/or deductions over years to avoid major “hits”.
Have you considering talking to a fee-only planner? I think these types of asset decumulation decisions are very smart for that and well worth the money.
Hope that helps,
I am looking to diversify by buying a few US stocks. Looking for companies with established brand names, essential services so that they are recession proof, long trend of increasing revenue, eps and dividend, sustainable or low dividend payout ratio, good cashflow. So far I have Microsoft, visa, Costco and possibly jnj, and home depot. They are expensive at the moment. Waiting for a good buying moment.
Any thoughts about these companies?
Hard to know “when” is a great time to buy stocks but I would agree in that your names are household names and although the future is always uncertain I suspect those companies should continue to survive and thrive. (Disclosure: I have owned JNJ for many years (>10) and MSFT for the last year from your list with no intentions to sell.)
RioCan really seems like a bargain with over 9% yield. I add more to my existing position and managed to average down a pretty good price. Price wise, it still seems a little flat for these few months but I’m suspecting it will start creeping up soon along with the big five banks.
Ya, REI.UN is providing good yield but it’s not sustainable and potentially a cut coming the longer it stays over 7% – anything over that for multiple quarters seems unsustainable to me even for a REIT. Long-term, as in years, it should be more than fine…
So my predictions are as follows
WFH continues to gain strength, I’d expect only about 30% of workers to return to the office.
Good bye open office (huge cheer for that one)
Housing crash: I’ve changed my mind on this one as real estate is now too big to fail, no real crash in site.
Printing Money: central banks are printing money so fast the presses are smoking! This isn’t going to change anytime soon and most of that money will flow to the wealthy via inflated assets.
We’re all socialists now: I expect some from of UBI to appear once CERB is finished.
Corona Fatigue: this one I’m really curious to see how it plays out. How long can you keep schools theatres sports etc closed for?
Inflation deflation currency crisis: I’ve heard good arguments on both side so no idea. Leaning towards inflation due to the debt load.
Taxes: UP UP AND AWAY:
Capital gains tax on housing: I give it a 30% chance
And finally one very un-appreciated trend. Anti-trust is making a comeback. Americans know something is wrong but they don’t know what. I highly recommend reading this, very eye opening. Warren Buffett America’s Folksiest Predator!
Uhmmm, I find it interesting that it is called healthcare as in my humble opinion we don’t have healthcare, we have sick care. The healthcare system doesn’t keep you healthy, you, what you eat, how you feed yourself mentally, physically, emotionally and spiritually keeps you healthy. For as long as a government is not focussed on that and helps us with that, “healthcare” will thrive and that is the whole purpose as too much money and too many people are gaining ..
Very interesting angle and take. I don’t disagree with some of those comments and we have a long ways to go to make health more holistic and preventive.
Interesting post Mark – food for thought.
I did notice you left out a sector near and dear to you (and me 🙂 ) – personal travel. My plans have contracted significantly and will stay that way until there is a confirmed positive development of an effective vaccine.
The healthcare sector is going to well no doubt. The office space sector not so much – personally I know of one large insurance company whose plans call for a maximum of 20% of their workforce to be in a “real” office – WFH is going to be the norm where feasible, ergo office space will go begging.
The next major event horizon (imo) is going to be the US election and if the dumpster fire in the US can be contained.
I did and left out for potentially a future post on this subject.
International travel is a real joy for me and I cannot see us travelling far unfortunately without an effective vaccine.
The U.S. election (while entertaining, sadly) will be pivotal since another four years of you-know-who is likely to start a modern civil war and set that country back about 100 years socially.
Great post Mark! I would also consider companies like Loblaws (L), Empire (EMP.A), Metro (MRU)….people still have to eat.
My investing rule #4 “Is the company recession proof?” has served me well especially during the last 6 months.
I also think 3M (MMM) is going to continue to thrive even after COVID19, as masks become a normal part of our lives.
Hope you are doing well! Yes, groceries stores and companies have been key haven’t they?
Healthcare sector should perform very well going forward. Healthcare combined with high tech industry is a very powerful force. Some noteworthy stocks to consider include Well Health Technologies (WELL), Cloud MD Software(DOC), ETF Germ. I think they have tremendous long run way ahead of them. GLTA.
Thanks Ken, interesting choices and will check out 🙂
Good post Mark, thanks. Yes we have to build and shape our new life in the first modern pandemic.
And it’s an endemic of course (meaning it doesn’t end). Health officials are now breaking it to the public with there’s ‘no silver bullet’ coordinated communication around the world. Even a useful vaccine will not be an answer. Even Fauci in the US finally offered that this is with us forever. A fact already known to those who were paying attention.
This is the new normal. This goes on for quite some time.
As an investor we can can own COVID-friendly stocks, or more speculative ‘recovery’ stocks. We have healthcare, tech, staples and some discretionary that is set up well.
My US portfolio was set up surprisingly well for the period. My Canadian stocks will face some challenges. But so far, no dividend disruption. All holds and dividend increases.
Good post for readers to think about the future that is thrust upon us.
Yes, this “thing” will be around for a long-time and could mutate which could be more scary, meaning, we’ll never get ahead of it.
“As an investor we can can own COVID-friendly stocks, or more speculative ‘recovery’ stocks. We have healthcare, tech, staples and some discretionary that is set up well.”
I suspect that is all we can really do. Own what we believe are somewhat recession-proof companies and ride the storms. I would have personally liked to have owned more U.S. and CDN tech stocks vs. indirectly via ETFs that I own but such is life.
Health is wealth anyhow.
Interesting thoughts. Thanks for this post!
Healthcare stocks should continue to do well, especially ones that eventually invent and have patents to COVID-19 vaccines.
I do think mall & retail REITs will recover. Office REITs like H&R REIT I’m not 100% sure since how we work will probably change as more and more people work from home.
One area that we will see more growth is robotic cleaners, especially industrial ones.
For now it’s about continue executing the investing strategy that we’ve doing for the past ten or so years and look for opportunities.
I think so Bob. My general thesis is everyone wants to be healthy – so healthcare stocks in general should be around for years to come.
Hummm, robotic cleaners. Interesting. Is that because people are just too lazy themselves to clean? 🙂