The recent and sudden market slide had nearly all investors caught off guard. Although markets appear to be rebounding, some investors are feeling stunned and discouraged. Others feel like little kids in a candy-store, buying everything in the bargain bin. For those retirees who were decimated during the 2008-2009 financial crisis, another severe market decline or double-dip recession may just be too much. According to a recent Globe & Mail article, some of the wealthiest investors have already thrown in the towel. I’m here to tell you otherwise.
Market declines are part of the process of investing in equities, after all “what goes up must come down.” We’ve had a pretty good run on stock prices and commodities since early 2009, so we shouldn’t be surprised to see the market blowing off some steam, whether it’s the big one, or a correction in the middle of a raging bull market.
In fact, the TSX Composite Index has actually been in a down trend since May 2011, off its highs of 14,200+ back in March and April. To give you some perspective, back on March 2nd, 2009, the TSX Composite Index closed at its low of 7,591 at the tail end of the financial crisis. That’s nearly a 90% gain in two years!
Don’t Sell Anything
Don’t sell anything! If you have a large chunk of bonds in your portfolio, then keep them. It’s tempting to start selling bonds now to buy equities, but it’s still early in the game. You’re going to need the cushion and income those bonds will continue to provide. And worst of all don’t sell your stocks or mutual funds when they are down, patience will go a long way. Down the road you will recoup the prices on your stocks or funds, but not if you sell them at a loss. In fact, keep adding to them on the way down, and lower your average cost. This strategy, while hard for most people to do, will also increase your gain when markets rebound.
Buy Equities Now
As bull markets are the best time to buy bonds, market declines are the best time to buy equities! It’s like going to the dollar-store to buy quality brand name items. Right now, and probably in the weeks or months to follow, you can get the best dividend paying stocks at 10% to 20% less than they were a month ago. Wal-Mart, Procter & Gamble, Johnson & Johnson, Coca Cola, and Pepsi, among others are on sale. These are solid giants that have weathered countless recessions, and they pay dividends! Or if you have index equity funds, then keep topping them up. Just don’t be in a rush to buy everything now, since we really don’t know where the bottom is. Buy smaller positions, or even index funds and ETFs, over a period of time.
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Were You Balanced?
If you were one of the wise investors who learned from the 2008-2009 financial crisis, you probably learned to be more cautious. You learned that holding a percentage of bonds at your age was a good idea, since bonds give you a cushion during falling markets, as well as income. You probably also learned that dividend stocks pay! Unlike equity mutual funds, large-cap dividend paying companies provide you a stream of dividend income, regardless of their share price. In fact, the dividend yield increases as prices drop. Having a diversified portfolio with solid blue-chip stocks and bonds, which provide dividends and income, is a godsend in market-declines like these.
Here are my latest two posts on the recent market decline:
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