“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” – Ben Graham, legendary investor, financial hero of Warren Buffett
I can appreciate these are trying times if you’re following the stock market, including watching your portfolio. World stock markets are blowing up.
There is slowing economic growth in China.
Crude oil prices continue their meltdown. U.S. oil prices traded below $40 a barrel recently for the first time since the 2009 financial crisis. Many Canadian energy producers have cut their dividends to shareholders. More dividend cuts or suspensions are likely coming in the months ahead.
Our TSX index fell almost 6% over the last week.
The S&P 500 suffered its biggest daily percentage drop in nearly four years – this index is also down close to 6% over the same one-week period.
The bull run is probably dead and the bear is growling.
Maybe you should sell equities and get out while you can? What about loading up on bonds?
Should you put more money under your mattress?
Of course you should do all of these things, if you have no financial plan in place.
If you have a financial plan (one that matches your tolerance for risk and addresses your long-term investment objectives) then you simply do nothing except for what your plan tells you to do. What the heck does that look like given the markets are blowing up?
I can’t speak for you but I can write about what we’re doing…
I’m learning more (and still working on this…) to stop worrying about things I cannot control. I have no influence on what the stock market does. I can’t tell you what the price of oil will be tomorrow. I can’t forecast what dividend cuts might be coming. I don’t know what’s going to happen with our Canadian dollar. I simply don’t know, I can’t predict these things and they are totally out of my control. They are totally out of your control as well. I’m learning to stop worrying so much and simply stay the course we’re on.
Staying the course
We’re invested in a few low-cost Exchange Traded Funds (ETFs) that give us ownership in thousands of companies around the world. Collectively they are struggling now, in the short-term. Collectively though over 5, 10 and longer investing periods I have full faith these thousands of companies will not only survive but thrive. We invest in these ETFs for long-term capital appreciation.
We also invest in a number of Canadian and U.S. dividend paying stocks for passive income. We believe long-term, the 30+ established companies we own will not only continue to pay dividends in the future but also provide us with some capital appreciation.
Here are some elements of our financial plan:
- We stay away from complex investment products; I believe such products are designed to be “sold”.
- We understand that risk and expected return are related; if there is no risk then we cannot possibly have higher expected returns.
- We believe one of the safest things we can do is to diversify our equity holdings over time; amongst industry sectors, companies and countries.
- We live in a world without any magic 8-ball; we simply won’t know if our investment strategy is truly right or wrong until we know the outcome.
Keeping it simple
Our simple financial plan could be explained to any 10-year-old. I like it this way. At least I can remember what we’re supposed to do in any given month…
- We continue to pay down mortgage debt, including making some lump sum payments on our mortgage.
- We continue to save money for investments in our registered accounts.
- We continue to reinvest all dividends and distributions paid for every investment (stock or ETF) we own.
That’s pretty much it.
Prudent investors recognize the difference between speculating and investing. To be successful we’ll need to stop worrying, stay the course and continue to keep things simple. That’s our system. I’ll let you know if anything changes.
What’s your plan for the markets blowing up? What’s your take on our plan?