The stock market outlook remains in a downtrend; no change in the ADX, price/volume, or Elliott Wave.
What do you need to embrace the stock market correction and recession created by COVID-19? First off, you need guts. We are in a period of extreme fear. You need to be able to press that buy button amid all of the scary reports and images. And it’s likely to get worse. You also need the time horizon. It’s possible that stock markets will deliver no returns for several years, perhaps a decade. And of course, you need the monies to invest. A few things have to be aligned for you to be able to embrace the stock market correction.
Now keep in mind that if you are currently in a lower risk or Balanced Portfolio you might simply keep on keepin’ on. You might add monies on a regular schedule. We should keep an eye on that retirement risk zone to ensure we prepare well before retirement. With a balanced portfolio you are managing the stock market risks and potentially reducing the portfolio recovery period. A Balanced Portfolio will typically recover much quicker than an all-equity portfolio.
How you manage the risks is a personal decision. One can go the traditional bond route. For more ideas you can have a read of the new balanced portfolio or how to prepare your portfolio for the coronavirus outbreak.
Dollar cost averaging during The Great Depression.
I’m not suggesting that we are going to enter a Depression. No one knows the answer to that. But sure, it’s a possibility. I believe in humans and the human spirit. I think things will get nasty but we will get through this.
But for argument sake let’s say that we do enter a severe and long recession or a depression. Let’s look back to the 1920’s and 1930’s. The following charts are from Plan B Economics and this article on Seeking Alpha.
That’s more than scary and nasty. I’ve invested in a chart that looks like that. It was the Nasdaq 100 during the dotcom bust of the early 2000’s. Not fun. You can have a read of the lost decade for US stocks.
But here’s the good news. What if an investor had the courage to invest on a regular schedule through the Great Depression?
That looks uh, ‘pretty good’ to use a technical investment term. Plan B had used a start date the somewhat replicates where we are as of today, taking into account the draw down we have already experienced.
Of course that chart looks better than the lump sum chart that displays the risk of investment amounts already held or invested at the time.
The financial crisis.
And if you dollar cost averaged through the financial crisis? For US stocks, we start with $1000 and invest $1000 every month.
Of course, while markets did fall by some 50%, there was a quick recovery. The S&P 500 returned just over 2% for the 5 year period. But with dollar cost averaging the investor was able to take advantage of lower prices to create a personal money weighted return of over 10% annual. Lower prices are good of course. And of course we need that eventual recovery.
You might embrace the stock market correction. This might be a wonderful investment opportunity. Again, you need the time horizon and the tolerance for risk. This might be a gift for those early enough in the accumulation stage.
Keep in mind this is not investment advice. Know thyself. Know the risks.
If in doubt, if you need advice, you might contact an advice-only planner.
We’ll start with Robin’s Reads, from The Evidence Based Investor. So many great topics and a must see video at the bottom of that post. We could all use a smile or two these days.
On MoneySense and from Bryan Borzykowski investing in the time of COVID-19 checks in with many experts.
On findependencehub another update on Aman Raina’s experience with a Canadian Robo Advisor. Aman goes over his recent and 5-year returns.
On myownadvisor Mark Seed asks if there is power in delaying retirement. I’ve heard from a few planners who would suggest you don’t quit your day job. You might also raise some cash for a worse case scenario.
Related post on Boomer and Echo: Is there a new normal for the 4% rule?
The Balance looks at US bear markets and their recoveries.
And this is a time to be careful with short term trades and more exotic risk management ETFs. The markets have stopped functioning properly at times. That goes the same with many discount brokerages. I’ve been very pleased with TD Waterhouse. It has worked very well.
Here’s 6 things Ben Carlson has been pondering during the crisis.
On the Canadian bank investment question, Horizons suggests this might be a wonderful opportunity.
In the Financial Post Victor Ferreira offers why some market watchers are not too quick to call a bottom.
And south of the border (armed with US troops?) Barry Ritholtz offers his Sunday Reads.
This week I asked if you should de-risk your portfolio during the COVID carnage.
Thanks for reading. Be safe. You know the drill. I think most are being sensible. Be prepared. The apex in New York, the US epicentre, will likely occur in 3 weeks according to Governor Cuomo.
Canada’s top-ranked discount brokerage.
Cut The Crap Investing readers can sign up with Questrade (Canada’s top-ranked discount brokerage) through this partnership link. You can buy ETFs for free, including the wonderful one ticket options.
While I do not accept monies for feature blogs please click here on the mission and ‘how I might get paid’ disclosures.
The post When you should embrace the stock market correction. appeared first on Cut the Crap Investing.
Deciding to invest in index funds is one of the smartest decisions you can make as an investor. However, while deciding to invest in index funds is easy, choosing which funds to invest in is not always as straightforward. Today, we’ll be comparing three popular funds from Vanguard: VTSAX vs VTI vs VOO.
Those of you that know me know that I’m a Schwab guy myself, but that’s not to say I don’t love Vanguard. When I was first deciding what broker to sign up with a few years ago, I spent countless hours deciding between the two.
And by countless, I mean a few hours doing online research.
I quickly learned that Schwab had lower fees, Vanguard had more tax efficient funds, and both offer a wide variety of benefits to investors.
Essentially, I learned that both are great brokers because of the high-quality and low-cost index funds and ETFs they offer.
Given that Vanguard is a top broker, it’s worthwhile to highlight some of the funds that they offer. Specifically, these three common options: VTSAX vs VTI vs VOO. Before diving right into their funds, we’ll start with a quick history lesson.
Vanguard was founded in 1975 by one of my favorite people in the investing community, the late John Bogle.
John “Jack” Bogle created a unique company in Vanguard, one where its investors are the owners. With this one-of-a-kind structure, Vanguard is able to reinvest its profits and keep costs low.
Proving that it is truly an investor-focused investment company.
On top of creating a new company structure, Bogle is also credited with creating the first index fund. The fund, Vanguard 500 Index Fund (VFINX), was criticized as “unamerican” at launch.
The common practice at the time included buying individual stocks or hiring a professional to manage your portfolio. Investors were baffled by someone who would concede to matching the market instead of trying to beat it.
Except, Bogle was a visionary. He knew that simple indexing could outperform active management by a fund manager, and $1.6 trillion worth of people would eventually follow him.
Today, Vanguard is run by CEO Mortimer J. Buckley and they manage $1.6 trillion in assets.
Vanguard has been a pioneer in the investment world over the past 40+ years, below are some impressive milestones that they hit:
- 1975 – Vanguard was founded by John Bogle
- 1976 – Bogle and Vanguard create the first index fund
- 1977 – Vanguard takes another step to keep costs low by eliminating loads, or sales commission
- 1990 – The first international stock index funds are created by Vanguard
- 2001 – Vanguard begins to offer ETFs
- 2013 – Assets under management surpass $2 trillion
- 2018 – Mortimer J. Buckley becomes CEO
List of Vanguard Index Funds
Vanguard offers a variety of index mutual funds and ETFs (exchange traded funds). To be exact, they currently offer 62 index funds and 74 ETFs.
Largely, I view index funds and ETFs as the same, but there are a few differences. The main one being that ETFs are traded like stocks throughout the trading day, while index funds are traded only once at the end of the day.
If you’re interested, you can learn more about the differences between index funds and ETFs here.
Regardless, all of Vanguard’s funds fall into one of the six broad categories below:
- U.S. Bond Funds and ETFs
- U.S. Stock Funds and ETFs
- International Bond Funds and ETFs
- International Stock Funds and ETFs
- Sector and Specialty Funds and ETFs
- Balanced Funds (Target-Date Funds)
Three of the most popular funds that Vanguard offers are VTSAX, VTI, and VOO. The first being an index mutual fund, while the second two are ETFs.
All three of them would be classified as U.S. Stock Funds and ETFs.
The data below is as of February 29, 2020.
The Vanguard Total Stock Market Index Fund (VTSAX) is designed to match the entire US stock market, including small-cap, mid-cap, and large-cap equities.
It’s a good option if you’re interested in building a simple, lazy portfolio (like a 3 fund portfolio).
|Asset Class||Stock / Equity|
|# of Stocks||3551|
|Net Assets||$229.9 Billion|
The Vanguard Total Stock Market ETF (VTI) is nearly identical to VTSAX, but is an ETF instead of an index mutual fund.
|Asset Class||Stock / Equity|
|# of Stocks||3551|
|Net Assets||$131.5 Billion|
The Vanguard S&P 500 ETF (VOO) has a narrower focus compared to the two other options above. It tracks the S&P 500, which is comprised of the 500 largest companies in the United States.
Its index fund counterpart would be the Vanguard 500 Index Fund (VFIAX), the new, Admiral version of the first index fund ever created.
|Asset Class:||Stock / Equity|
|# of Stocks:||3551|
|Net Assets:||$130.4 Billion|
VTSAX vs VTI vs VOO Comparison
As you may have noticed by now, all three of these funds from Vanguard are very similar overall.
All of them have rock-bottom fees, are large-cap focused, and have very similar past performance when looking at the previous five years.
Though, there are some slight differences to be aware of:
Type of Fund
VTSAX and VTI are both total US stock market funds.
VOO is an S&P 500 fund.
A total stock market fund provides slightly more diversification, but also slightly more risk. These total market funds carry mid-cap and small-cap stocks, as well as large, blue-chip American companies. These smaller and mid-sized companies are generally viewed as riskier because they have more opportunity to grow, but also have a higher likelihood of failing.
The S&P 500 fund attempts to match the S&P 500 index set by Standard and Poor’s. It simply carries the biggest 500 companies in the United States.
Despite these slight differences, It’s worth noting that Vanguard rates all three funds at the same risk level and all three have provided very similar returns over the past 5 years.
ETF vs Index Fund
VTSAX is an index mutual fund.
VTI and VOO are both ETFs.
As mentioned, the major difference between an index fund and ETF (exchange traded fund) is:
- An index fund is traded once at the end of the day
- An ETF is traded throughout the day, like a stock
To be frank, this difference should not matter to long term investors. If you’re investing for the long term, there shouldn’t be a sudden urge to sell something at noon.
Another small variable to point out is that ETFs have a spread. Like a stock, there is a bid and ask price, and the difference between those two numbers goes to the middle man (broker). Luckily, most Vanguard ETFs are big enough where the spread is very small and usually not a huge factor.
To sum it up with an analogy, choosing between an index fund and ETF is like choosing between Honda and Toyota. Both are fine options and will get you to where you need to go.
Minimum Initial Investment
VTSAX has a $3,000 minimum investment.
VTI and VOO both don’t have a minimum investment (it is the price of one share).
Over the long term, this difference does not matter at all.
Although, for new investors, $3,000 is a lot of money to scrounge up for an initial investment! When I started investing, all I had was a few hundred bucks.
Other Popular Vanguard Funds
Now, comparing VTSAX vs VTI vs VOO is not a comprehensive view of Vanguard funds – these are only a few of the good funds that Vanguard has to offer.
Vanguard offers hundreds of funds across a variety of asset types. Below are some other common options, spanning outside of just equity funds:
- BND – Total Bond Market ETF
- BIV – Intermediate-Term Bond ETF
- VBTLX – Total Bond Market Index Admiral Shares
- VFIAX – 500 Index Admiral Shares
International Equity Funds:
- VEA – FTSE Developed Markets ETF
- VTIAX – Total International Stock Index Admiral Shares
- VEMAX – Emerging Markets Stock Index Admiral Shares
If you’re interested in getting into the weeds, you can get a full list of Vanguard funds here.
It’s fun (for investing nerds) to see everything they have to offer, but at the end of the day, keeping it simple is usually the best option…
VTSAX vs VTI vs VOO: Why Simple is Better
Choosing between VTSAX vs VTI vs VOO is hard because they are so similar, but also easy because they are so similar. Stick with me…
You can’t really go wrong with any of them, in my unprofessional opinion.
They all match the two major things I look for choosing an index fund or ETF:
- The fund matches a broad underlying index (nothing actively managed)
- The expense ratios and costs, in general, are extremely low
A 3 fund portfolio would consist of one of the funds above, in combination with an international equity fund and bond fund. The goal of a 3 fund portfolio is to build a diversified portfolio as easily as possible.
A single fund portfolio is even simpler, and you would choose only one of the funds (between VTSAX, VTI, and VOO) and funnel all of your money into that single fund. It’s riskier, but those that choose to use this strategy realize that broad market funds are sometimes diversified enough to fit their needs. Plus, their costs stay very low thanks to an extremely low expense ratio.
Regardless of what simple strategy you choose to implement, before investing, it’s best to be clear on your long-term plans and goals.
My oh my. What a difference a month makes. In last month’s article, we discussed how dividend growth slowed and there may be an economic slowdown. This month, it is a completely different story. The coronavirus, COVID-19, pandemic has spread and the economic impact has been unlike anything I have ever seen. The impact on individuals, small business and corporations is changing on a daily basis. For many companies, they are rethinking their 2020 strategic visions and changing their dividends & capital strategies on the fly. It will be tough to predict the expected dividend increases in 2020; however, we will highlight the companies that have historically announced dividend increases in April.
The story for dividend investors in March 2020 was unfortunately a negative one. High profile dividends, from some of the largest oil companies and other hard hit industries, were coming in what felt like daily. Here are some of the major dividend cuts that were announced at the time I wrote this article:
- Occidental Petroleum (OXY) slashed their dividend by 80%. Lanny was all over this one, even predicting the cut the night before it happened in this article. All eyes are focused on the other major, integrated oil companies. Currently, they are cutting capital spending, suspending buyback programs, and unfortunately, laying some individuals off in an effort to fight off the impact of low oil prices. Will this be enough to save their dividends if low oil persists? That’s the question.
- Delta (DAL), and nearly every other airline, suspended their dividend for the foreseeable future. This one is not very surprising.
- Boeing (BA) suspended their dividend. The company continues to have problems. Coronavirus wasn’t the root cause of all the company’s problems, but it dealt the final blow to the company’s dividend.
- Retail, restaurants, and hotels have also seen many companies cut their dividend. Again, this isn’t surprising due to the stay at home orders. There are many of companies in this sector that were impacted and I cannot list them all. Here are the major companies: Marriott (MAR), Hilton (HLT), Gap (GPS) , Macys (M), Nordstrom (JWN), Darden Restaurants (DRI), Cheesecake Factory (CAKE), and Cracker-Barrel (CBRL).
The dividend cuts also caused us to do some deep reflecting. After each cut, we talked, and thought about how we wanted to change our investment strategy during these troubling times. Our dividend stock screener still holds strong. These three simple metrics have served us very well over the years. However, we have felt the need to dig deeper with each investment while things are uncertain.
First, we are taking a deeper look at debt on corporate balance sheets. Debt didn’t contribute to all the dividend cuts listed above. However, it sure was a major factor in OXY’s dividend cut (I think we all know that story pretty well by now). Even other companies that spent years funding share buybacks with debt are facing pressure now. So this month, I ran a screener to identify Dividend Aristocrats with Low Debt on their balance sheets. Debt will be considered in my investment decisions for the foreseeable future.
Second, Lanny put together a list of industries that are built for this pandemic. Knowing where to start as a dividend investor during these times may be difficult. Lanny’s guide will help you find the industries that are best position to NOT make it on the list of dividend cuts above. A dividend is never guaranteed, so I’m not saying their dividend wouldn’t be cut if this pandemic gets worse. Always remember that!
Actual Dividend Increases in March 2020
Before looking ahead to April, I always like to recap the dividend increases from the previous month. Let’s dive right in to the companies that were expected to announce dividend increases in March.
Company #1: Colgate-Palmolive (CL) – Colgate stuck right in line with their recent dividend increases. Over the last few years, they have increased their quarterly dividend by $.01 per share. 2020 was no different. The consistency is very much appreciated right now.
Actual Increase? – 2.3%
Greater than Last Year? – It was right in line with last year’s 2.4% dividend increase
Company #2: General Dynamics (GD) – Lanny has been building a position in General Dynamics over the last several months. Even though that dividend increase was lower than last year, a nearly 8% increase is awesome!
Actual Increase? – 7.8%
Greater than Last Year? – No, last year’s dividendi increase was 9.7%
Company #3: Oracle (ORCL) – Oracle was the first company on this list to not announce a dividend increase when expected. Their dividend increase streak isn’t as robust as some Dividend Aristocrats, so the increase was hardly guaranteed. But I’m sure this will be a common trend among other states.
Actual Increase? – N/A
Greater than Last Year? – N/A
Company #4: Realty Income (O) – We all love the monthly dividend paying company. Realty Increase announced their increase by the same fractional cents as they typically do! REITs like Realty Income will face some pressure in the coming months as the negative impact on their tenants is felt.
Actual Increase? – .22%
Greater than Last Year? – In line with all of their other dividend increases!
Expected Dividend Increases in April 2020
With the month behind us, let’s look forward to April. April will be fascinating, in my opinion. I see a few of scenarios playing out. There will be companies that stick to their regular dividend increase schedules, albeit, announcing lower dividend increases than their recent averages. Or, I am expecting that some companies will wait a quarter or two to announce their dividend increase. Dividend Aristocrats in particular will not want to snap their dividend increase streak unless absolutely necessary. That doesn’t mean they cannot delay their dividend announcement one quarter until 2020 forecasts can be updated. Therefore, let’s look ahead to the expected dividend increases in April 2020.
Company #1: Procter & Gamble (PG) – A Dividend Aristocrat and Top 5 Foundation Stock lead the listing for April. I love this company and management has done an excellent job “waking the sleeping giant” over the last few years. They are included in Lanny’s listing of companies that are built for a pandemic. In my eyes, I would expect the company to continue their dividend increase streak with an announcement in April.
Last year’s dividend increase – 4.04%
Five-year average DGR – 3.00%
Expected timing of Dividend Increase Announcement – Beginning of the month
Company #2: Johnson & Johnson (JNJ) – Like P&G, this Dividend Aristocrat is one of my favorite holdings. It is also one of our Top 5 Foundation Stocks and within Dividend Aristocrats with Low Debt. Chances are, if you are looking searching for a list of strong, dividend paying companies, JNJ will find its way on that list. I am also anticipating that JNJ will announce a dividend increase this month, versus possibly delaying the increase.
Last year’s dividend increase – 5.56%
Five-year average DGR – 6.30%
Expected timing of Dividend Increase Announcement – End of the month
Company #3: International Business Machines (IBM) – IBM is not a Dividend Aristocrat. However, they are closing in on the coveted title. The company has announced dividend increases for 19 consecutive years. I am anticipating the company will announce an increase in 2020. However, I could potentially see IBM waiting a quarter to make the announcement. Taking a step back, it was very strange to see IBM’s share price fall below the $100 per share and to see their dividend yield shoot up. I added a few shares this month, as a part of my nibbling investing strategy. And I may continue to do so if the markets turn south again.
Last year’s dividend increase – 3.18%
Five-year average DGR – 8.17%
Expected timing of Dividend Increase Announcement – Beginning of the month
Company #4: Southern Company (SO) – As a utility company, I am not expecting too much to change from a dividend increase for SO. SO has consistently announced $0.02 per share increases in their quarterly dividend over the last few years. Barring any changes in the first half of the month, I would expect to receive your dividend increase in April.
Last year’s dividend increase – 3.33%
Five-year average DGR – 3.38%
Expected timing of Dividend Increase Announcement – Middle of the month
Company #5: W.W.Grainger (GWW) – Grainger, Grainger, Grainger. Lanny purchased shares a few years ago and it is one of my favorite investment purchases of his. Grainger’s dividend increases have fallen between 5%-8% on average over the last five years. Grainger is a model of consistency, so it will be very interesting to see the dividend increase they announce in 2020.
Last year’s dividend increase – 5.88%
Five-year average DGR – 5.93%
Expected timing of Dividend Increase Announcement – End of the month
Company #6: Apple Inc. (AAPL) – I think this will be one of the most fascinating companies on the list. What is Apple going to do? Their dividend increases are usually at the end of April or the beginning of May. So we are going to have to wait a while to see if the company increases their dividend or maintains it at their currently level. I am expecting the former scenario, but I could also see them delaying it a quarter as the dust settles (hopefully).
Last year’s dividend increase – 5.48%
Five-year average DGR – 10.43%
Expected timing of Dividend Increase Announcement – End of the month
All I have to say is let’s wait and see what this next month brings us. If March showed us anything, it is that things can change daily, hourly, or even sometimes, within minutes of each other. It is as important as ever to focus on quality investments. Taking a step back, this is also a great time to focus on your personal balance sheet. Work on saving a few extra dollars and padding your emergency fund. There are plenty of ways to save or earn a few extra dollars (via our Financial Freedom products). If you want to save today, Lanny gave you 5 EASY ways to save $500! Let’s get after it everyone!
Most importantly, stay safe & healthy.
The post Expected Dividend Increases in April 2020…Hopefully appeared first on Dividend Diplomats.
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How are we doing? Hope you’re not going stir crazy cooped up indoors all day!
Lately, quite a number of people have asked what the impact of the Coronavirus will have on our housing markets.
I wrote a very short paragraph in an earlier post Blueprint For Investing During The Coronavirus Pandemic but I feel like it deserved a post on its own.
So here goes.
“Takes a deep breath”.
This is an economic crisis as much as a health crisis.
So firstly, it is important to look back on history and have a look to see what impact economic crises have had on our real estate market.
Courtesy of our friends at Corelogic we can see the results are mixed:
There were a few periods of inherent stress in housing – the 1990’s recession we had to have, the GFC of 2008-09, Eurozone crisis of 2011-12, and most recently the APRA changes, Banking Royal Commission and Labor’s unloseable election of 2018-19.
But you can see there were significant periods in recent economic history in which housing performed well or at least relatively well compared to the underlying conditions.
Indeed, after “Black Monday”(US stock markets dropped 23%… in ONE DAY), our real estate markets boomed.
Housing vs Stocks
Speaking of stock markets, how does real estate compare?
Hm, so real estate values have typically tracked equity values, however do not experience the same level of volatility nor extreme ups and downs.
There’s a couple of explanations for this.
The main one is that real estate is an illiquid asset.
This means that the time it takes to transact, is significantly longer than most asset classes.
Take buying/selling a house or apartment for example.
From the time the property lists, to home opens, to finding a buyer, to negotiating, to conducting due diligence, to settlement (standard 6 weeks)… you’d be looking at a MINIMUM of 3 months.
There are exceptions of course, when the market is booming or when you have desperate sellers, but even then, it’s still measured in weeks.
When it comes to shares, you can buy and sell so long as the market is open, and takes about 3 days to settle an account.
The second reason, is that real estate is a basic need.
For example, if the economy is hurting and you need cash, you can sell your shares, but you won’t sell your place of residence (except as a last resort).
People always need a roof over their heads.
What About Now?
I think it still holds true in today’s climate.
We’re going to do everything we can to maintain that roof over our head.
Which is why there’s one crucial factor I think which affects real estate values more than any other.
By that I mean…
There’s no doubt unemployment will spike because of COVID-19.
The main industries affected so far are:
- Tourism (which includes aviation and accomodation)
- Retail and hospitality (social-distancing)
- Arts and recreation (everyone staying indoors)
And with impending lockdowns looming, more and more of us will be affected.
But y’know, despite this, I think real estate values will hold up OK in our capital cities for the moment.
This is because the largest employment sectors are still plugging away.
Take where I live, Sydney, as an example.
Sydney has more than the average share of white-collar IT, professional and trade services as well as healthcare and education workers.
These jobs (apart from healthcare) has migrated from the work office (or schools), to be conducted online.
A shift in working arrangements for sure, but people are still employed.
Similarly in Melbourne as well.
The next biggest population centres of Brisbane and Perth are more tied in with the mining and construction sector – and to my knowledge, these sectors are still going OK.
With rumours of a China stimulus package to be announced, it could actually be beneficial to the mining sector.
Adelaide’s market is steady as she goes historically, neither booming nor dropping irrespective of the economic conditions and I’m expecting more of the same Steady Eadie.
Canberra is heavy on the public and government sector, and I haven’t heard of any significant job cuts. They are probably working harder than ever to keep the country running.
I’m sorry to say that the job losses have been heavily skewed towards those industries traditionally lower on the pay scale. They also seem to be a younger demographic too.
Hence their initial purchasing power was limited.
Which is why I think despite the negative headlines and rising unemployment, currently the impact to housing values is cushioned.
BUT if there are substantial job losses in the aforementioned sectors, then expect real estate prices to tumble.
What About Social Distancing?
Ah yes, of course.
We’re seeing news articles about new ways of conducting real estate – from online auctions to virtual tours and 1 on 1 private inspections.
But fundamentally, real estate is a tangible asset.
This means it is real, not pieces of paper or numbers on a screen.
Which is why the overwhelming majority of buyers physically inspect a property before putting an offer in.
However why would you go to an inspection when there’s a chance you’ll catch COVID-19? Or when your income is not stable? Or when the economic outlook is uncertain?
Which is why transaction volumes will be hit hard.
But transaction volumes doesn’t necessarily mean price falls.
Because as a seller, you determine what price you want to sell.
And you’ll only drop your price if you want to move it on, or you need cash, or you’re desperate.
And why would you do that?
Maybe because you just lost your job.
Everything comes back to jobs.
Watch it closely.
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P.S. This is my opinion only of course, just because I say something doesn’t mean that it will happen – just ask MrsFrugalSamurai!
The post Coronavirus and its Impact to Australian Real Estate appeared first on The Frugal Samurai.
There’s no doubting that current times are scary for both young and old. The coronavirus situation is unprecedented and has led to job lay-offs, fatalities and potentially even a recession. However, this is also a massive stock buying opportunity for those investing in the long-term. To be clear we have now entered a bear market, which is a 20% decline from a recent high.
This is essentially a once in a decade buying opportunity and can provide an economic springboard to many Millennials looking to improve their long-term financial outlook. However, the current stock market volatility can be misinterpreted to be a bad time to invest in stocks and even dissuade many investors from getting started. It will be construed by many as yet another confirmation that they should steer clear of the stock market.
The Situation Is Not Ideal But We Can Survive
Now, I want to point out that i’m not saying this from my high castle, with a secure job and bundles of extra cash. As many of you will know, recently I quit my job to travel the world and settle for a time in Australia (what a time to do it!). With the double whammy of travel restrictions and hit to the economy, the outlook could be better. Jobs are harder to come by, especially for casual workers and I cannot use geographical arbitrage to my advantage.
I have large cash reserves of over £12,000, £6,500 in interest free credit for nearly two years and a subscription to Trusted Sitters. If things get that bad, I can hire a free campervan and travel the coast (if allowed), or find home-sits.
Ideally I would like to invest more than my current direct debit of £50 a month in the market but until I get a solid income I’m approaching the market with one hand behind my back. If this was not the case I would be coming out swinging and this post will cover why.
Stock Market Crashes Are To Be Expected
Firstly, as I’ve pointed out in previous posts: this market drop is expected. Since 1950 the S&P 500 has experienced, on average, a 20% decline every 7 years. Therefore this kind of stock market pullback is long overdue with the bull market running for 11 years.
However, no one can really say how long this bear market will last or say how much stocks will fall. Since 1929 there have been 14 bear markets, with the longest lasting 37 months (34 in the 1929 crash), the shortest 3 months and the average being 22 months
The greatest shockwave to the stock market was in 1929 when stocks dropped 86% but on average the decline has been 39%. Another significant bear market you might remember is 2007-2009: where stocks fell up to 59% over 27 months.
They Say This Could Be Worse Than 2008/09
Although it cannot be stated for certain, I believe that this will not be as bad a 2008 and this is for two reasons:
- Many governments are using fiscal and monetary stimulus to support their economies.
- The foundations of the economy were shattered in 2008 due to a systemic issue and the unregulated trading of financial derivatives.
- Unlike the 2008 crisis the banking system is much stronger. 1973-1974: down 48% over 21 months
Even when you look at the US stock market in recent years, it was still resilient against the crash, and recovered from short term volatility to provide good returns.
The Market Always Recovers
In my previous posts I’ve also highlighted that the stock market always goes up over time, despite the volatility and even the threat of Nuclear war.
On the 28th of March 1980 (40 years ago), the S&P was valued at 100.68. Despite all the market crashes listed above, including the latest 2020 drop, the S&P is still valued at 2,304. Even if you would have started investing in 2002, just short of 20 years ago at 800.58 at the near bottom of the .com crash you would still be sitting on impressive returns.
In fact, even when it comes to pandemics, the markets usually shake them off. The last coronavirus SARS after 3 months the US stock market was down by 8% but this recovered in 6 months to +4.8%.
Trying To Time The Market May Cost You Your Investment
One of the most important points, however, is that the one-year return after a trough is on average 47%, with the lowest come back being 23% and the highest being 124% in 1929 (68% excluding the 1929 depression). Therefore, if you sell out now or don’t invest, you risk selling high and then missing this resurgence.
To hammer home this point, if you invested £10,000 between 1999 and 2016 and stayed fully invested your returns would have been £43,930 (8.19% annualised returns), however if you missed the 5 best days you would have cost yourself -£14,785. Miss the top 30 days and you would return £1,000 less than your initial investment.
Stocks Are On Sale
I usually invest in Index funds but there could be even more riches to be had with individual stocks that are suffering. Historically, the Price to Earnings Ratio (P/E) of companies are significantly lower during bear markets. I have my eye on a few companies which have good balance sheets, high levels of cash, low debt and good long term prospects.
One example is the Dart Group in the travel sector, their share price was £19.20 a share but dropped all the way to £2.76 a share with a P/E ratio of <5. Although even since writing this post it has since picked up to £5.85 They have £1.5 billion in cash, this should be enough to see them through when other tour operators and airlines crash and they will see a phenomenal pick-up in growth following the bear market.
If you found this post interesting and are looking into buying some individual stocks then find out what three value for money stocks I have my eye on.
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