My brother texted me on Friday asking advice on whether he should sell his 1,968 shares of TD bank that sit in his employee savings plan. My brother is 59 and will be retiring next year. He's single and owns his own house.
My response;
"Not a chance in hell would I ever do that. Consider and focus on the income those shares spit out year after year and will continue to spit out throughout your retirement. Forget the stock price and instead focus on the dividend growth that plan will provide you. This is a great problem to have but don't let fear guide you through a possible market crash. This is when you are likely to do something stupid."
My brother works for the bank so consider that next time you run down there and talk to someone about buying bank mutual fund investments. Do this yourself.
He further goes on to tell me that he has another 1800 shares of TD in his investment account. Obviously that's a lot of money tied up in one stock. He was just blind loyal to his employer. He just needs to address his stock selection once he is pensioned off and addresses his retirement needs.
The main point here is don't panic because everyone in the financial industry tells us that a crash is coming.
All they ever talk about is a market sell off so they can sell more ads and products to investors tuning into their shows.
Why the Sell-Off Friday?
Forget the virus named after a beer, that's not why.
The 30 year U.S. government bond just hit a historic low. (1.92%) Yes it happened and it's different. It's never been this low in it's history.
The U.S. dollar also got walloped down to the tune of a half percent.
This all equaled out to a market sell-off. It still finished above it's lows on the day. Did you panic and sell stocks? The Dow was not even down 1% but yet investors are fixated on the corona virus and in some cases like my brother are thinking of selling.
There is however no doubt that we are in the midst of a
DEBT SUPER BUBBLE!
This is what makes this market different than all the previous bubbles in history.
The bond market is definitely flashing red. There is a problem here but does that mean you should start bouncing in and out of your stock positions?
Most people can't do that. If you are a DIY investor you probably think about this all the time. You have to be right on the sell side and then you have to be right timing the buy to get back in the market. Tough to do.
What Happens Next?
A couple things come to mind.
Interest rates will be cut.
Negative rates will soon be here.
The attempt to avoid a yield curve inversion has failed. The Fed's money printing repo scam has created distortions in the stock and housing markets. Don't believe that? Check housing prices in Toronto. Just insane.
Look at the price action in gold and silver. What does that tell you? All of a sudden we have these spikes in precious metals. It's telling us that there is a flight now to safety. Investors are flocking to gold, silver and the bond market.
You MUST ignore what the stock market does on a day to day basis. It only matters to day traders.
We all know that this pumping of the debt bubble, hyper inflating assets can't go on forever. Yes I worry about it too.
If you own a lot of risk assets like big tech with sky high multiples with exposure to China, I would punt them here.
As an insurance hedge you could buy some physical gold and silver. Take the high road and buy some crypto currencies. This is just you taking action and protecting yourself away from central banks and the control they have over these markets.
The stock market will go up and then down until it doesn't. I'm just offering up alternatives and strategies to help preserve wealth and prevent panic on those down days.
Expect more debt to be issued by the Fed and also more intervention by the Chinese central bank.
A 30 year Canadian Gov't Bond now pays 1.39% interest
A 5 year pays you 1.50%
Why would you go that far out on the yield curve when you can make more by going short. The yield curve is flattening out and inverting.
The inflation rate in Canada as of January 2020 is 2.4%
Why would you lock up money and fix it at rates below inflation? Is that safe?
Not if you're retired and seeking income. I do not seek to fix my income in retirement. I want to grow cash flow. Cash flow is king when you stop working. Nothing else matters, except for time and what is your time worth?
Warren Buffett on bonds;
“It is a terrible mistake for investors with long-term horizons - among them pension funds, college endowments and savings-minded individuals - to measure their investment 'risk' by their portfolios ratio of bonds to stocks. Often high-grade bonds in an investment portfolio increase its risk.”
Watch the Bond Market
A 30 year Canadian Gov't Bond now pays 1.39% interest
A 5 year pays you 1.50%
Why would you go that far out on the yield curve when you can make more by going short. The yield curve is flattening out and inverting.
The inflation rate in Canada as of January 2020 is 2.4%
Why would you lock up money and fix it at rates below inflation? Is that safe?
Not if you're retired and seeking income. I do not seek to fix my income in retirement. I want to grow cash flow. Cash flow is king when you stop working. Nothing else matters, except for time and what is your time worth?
Warren Buffett on bonds;
“It is a terrible mistake for investors with long-term horizons - among them pension funds, college endowments and savings-minded individuals - to measure their investment 'risk' by their portfolios ratio of bonds to stocks. Often high-grade bonds in an investment portfolio increase its risk.”
It is the financial industry that wants you to have a 60/40 split of stocks and bonds. Pure unadulterated twaddle born from modern portfolio theory to sell you products.
Amazing how many people own great stocks and can't see or recognize what they really own, a sold source of income. As you've said they can't get past the MPT and worried about price and the market.
ReplyDeleteYes it really is amazing. My brother should know better but most people panic at the first signs of trouble. In our position it's always best to focus on that growing dividend income than a crashing stock price. Matter of fact these are great days to buy.
DeleteI think it would still be better to lock up some of your assets in fixed income like GIC's in Canada at above 2% (while you can still get them )for a longer term based on where interest rates may be heading..if you are going to be retiring in the near future. I noticed recently the GIC interest rates are dropping, you can barely get 2% anymore and it's better for one year than longer terms.
ReplyDeleteNot for longer than 1 year while you conserve cash to deploy for better income options. Inflation runs at 2.4% so you lose money long term after taxes. I view GICs as going broke safely. Sorry!
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