I never thought I would be having to think of ways I would be investing during a pandemic. Another bear market?
But a pandemic that has wiped out millions of jobs and has decreased the productivity of people, no, I didn’t think this would happen. You have probably heard this a million times, but these are definitely unprecedented times we are living in right now.
This is my plan on investing during the time of Corona. Everyone has a different way of managing their investments, but I thought I would share mine (and look back on this when I am tempted to sway or meander from this plan).
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Table of Contents
No One Can Time the Market
It is disconcerting that Warren Buffett has not really bought anything during this bear market so far and instead has done more selling. He recently sold all of his position in the airlines, including Southwest Airlines, United Airlines etc. In the Berkshire Hathaway Annual General Meeting broadcast in early May, he said he didn’t see anything that was a good price so far.
When the Oracle of Omaha isn’t buying shares left right and centre, like he did in the 2008-2009 market crash, that would have just about anyone interested in investing worried. People are saying that the worst is yet to come, and and we will be seeing upwards to 20% of unemployment rate in the United States in May and June.
Things are probably going to get worse. The second phase of the coronavirus will likely come in the fall and winter, and then there will be flu season to contend with. This will likely lead to more shut downs and more businesses affected and forced to temporarily (or inadvertently, permanently) close.
So even though you can’t time the market or predict how the economy will fare, you can still try and be a defensive investor during these times.
Here’s my plan on investing during a pandemic:
Keep Cash Available
Research shows that being 100% invested is better than hoarding cash. This Seeking Alpha article breaks down the numbers and shows how that works. Even though that math works (100% invested in the market), psychologically, I feel better having cash available and on hand.
It helps me sleep at night.
Warren Buffett is often quoted on this:
Only when the tide goes out do you discover who’s been swimming naked.
I’ll continue deploying cash in regular intervals (and additional deployments should we having something similar to what happened in March). If I run out of cash to invest (I will keep enough for 1-2 year’s living expenses), I may consider borrowing to invest in this bear market if the interest rates are still very favourable and the bear is still around.
Dollar Cost Average
As mentioned, I’ll be deploying my cash in regular monthly intervals.
Probably the most important way that I’m going to keep grounded during this long-haul pandemic bear market recession/depression whatever we are going to call it, is to continue to dollar cost average. I am increasing the amount I invest per month from my usual baseline. Probably going 50% higher than what I would usually invest.
I’ll continue buying the index ETFs- VXC (Vanguard All Cap ex-Canada ETF) and XIC (iShares S&P/TSX Capped Composite Index ETF) are my go-to index ETFs in regular amounts as the ‘main course’.
I’ll also buy dividend paying companies in addition to this, but I will endeavour to make this be the side dish instead of the main dish. I prefer dividend paying companies to index ETFs because of the dividend income. I really enjoy watching my dividend income roll in on my Wealthica income dashboard.
You could also set up a drip (Questrade does a synthetic drip) so that when you get paid dividends and distributions, you can automatically reinvest the monies received.
To make sure dollar cost averaging doesn’t get ‘unbalanced’, you could use Passiv to notify you when you need to rebalance (or even rebalance automatically). It is free for the first year for Questrade users.
Buy (BIGGER) On ‘Dips’
On days when the Dow goes a little wild and Mr. Market is needing multiple circuit breakers (that period in March was so very intense!), I will try and buy bigger on the dips.
I bought TD bank shares while it was at $50.00/share in March and very much regret that I didn’t go ‘bigger’. Of course, hindsight is always 20/20 and little did I know that the market would keep climbing and climbing irrationally in April as the COVID-19 cases hit over 1,000,000 in the United States.
Sometimes it is hard to do to buy more shares and ETFs while I’m taking care of my young children, for example, that’s why setting limit orders can be helpful. I can’t be sitting in front of a computer buying stocks and ETFs while my toddler is awake. Questrade has a decent app which is handy for when I can’t get to the computer, so I can see if my limit order requests went through easily enough.
Invest in Canadian Recession-Proof Stocks
I can’t lie, I love passive dividend income and am trying to aim for $15,000+ in passive dividend income annually. There are a few Canadian ‘recession resistant’ companies that I am interested in picking up more of if the price is right.
This is not meant to be investing advice, please do your own diligence and research.
Fortis is a Canadian Utility Stock. It has actually held up quite well through this pandemic investing season so far. People still need to eat (with their gas stoves) and heat their homes with radiant heat. Companies like natural gas provider Fortis (FTS.TO) has been paying dividends for over 46 years (with consistent dividend increases).
The market price hasn’t gotten low enough yet for me, but I might pick some up anyway if it gets back to March 2020 levels.
Canadian banks have been paying dividends for a very long time. In fact, Bank of Montreal (BMO.TO) is the longest running dividend paying company in Canada. There may be some risk as people are unable to pay their mortgages because of job loss, but the Canadian government won’t let Canadian banks fail if they can help it.
BMO pays out 40% to 50% of earnings in dividends to shareholders over time. The dividend might not be ‘safe’ as it it might get cut or might not be increased like it normally would with the recession, but I highly doubt they will suspend dividends entirely.
I’m definitely eyeing to add more TD Bank (TD.TO).
Canadian Telecommunications Companies
Telecommunication companies like Telus (T.TO) will do well during a recession. I have a small position in Telus and am looking to add more. They are expanding with Telus Health and Telus Babylon (virtual visits with a physician, covered by Medical Services Plan). People need their Internet and cell phone data like they need water.
Other investing ideas can come from the daily Stockchase emails about market happenings. I find it is a great tool to keep abreast of what’s going on in the business world.
Pandemic Investing Strategy: Summarized
I guess basically, my pandemic investing strategy boils down to ‘keep calm and invest on’.
While I’m investing during a pandemic, I’m going to:
- Remind myself that I cannot time the market
- Keep cash available
- Invest in regular tranches
- By more on dips
- Invest in Canadian recession proof stocks
Prem Watsa, who is known as the Canadian Warren Buffett, says this too shall pass and we will learn our lesson from this pandemic. There’s a lot of uncertainty right now but there was uncertainty in 2008-2009, in 2001 with the 9-11 attacks, and in 1974 when OPEC played with the oil prices.
What is your investing strategy during this pandemic?
GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for blog updates, a free dividend yield spreadsheet, and the free Young Money Bootcamp eCourse.