I hope this communication finds you healthy and staying well through this period of uncertainty. My team and I are well, and God willing, will continue to be so.
I want to outline several considerations for you as an investor. If you have questions, feel free to email me here.
Over the last two weeks, my team and I have spoken to many clients. We understand your fear and anxiety.
Times like this are what we had in mind when we developed our investment philosophy. A core principle for us is to not abandon reason for emotion or panic in difficult times. Our recommendations are always based on evidence, not fear or misinformation.
Today, I want to offer both a long-term perspective and some observations about the current situation.
Let me begin by offering some context about our models.
When we built our dividend models, we back tested our strategy to analyse how the models would have performed historically, in good and bad markets. I’m proud to say that the Richard Dri Dividend Model’s 35-year (from Dec/85 to Feb/2020) return was 13.7% versus the 8% average gain of the index.
That said, our model didn’t rise in a straight line. In fact, we have experienced negative returns in 32 out of 136 quarters, with the maximum drawdown occurring between May/07 and Feb/09. (It was a drop of 32% over a period of 22 months.)
Our back testing shows that the models will decline in value (possibly as much as 32%), but over a longer time frame, they will perform very well.
Now, let’s look at the immediate term and discuss today’s environment. (I will stick with what I know and not offer medical advice or make big bold predictions.)
Here are 10 important things to remember:
1. The banks are secure
The banks learned valuable lessons in 2008. Some facts about today:
Banks have higher capital levels to ensure that we are well positioned for the next downturn
BNS has ample liquidity (and the Bank of Canada has promised more liquidity)
Banks have simplified their focus in the Americas
BNS is in regular contact with the government and regulators to ensure coordinated action
2. We are open for business
Ashley and I are working from home while Grace and Lora work from the office. We will rotate after two weeks. Trading is open and all administrative work is being completed in a timely fashion. Portfolios can be accessed electronically, and we respond to all emails and phone calls. In-office appointments will be cancelled until further notice.
3. Asset allocations are appropriate
We have spent most of 2019 balancing and rebalancing client portfolios, so they adequately reflect clients’ age and risk profile.
4. Tactical model in cash
On February 26th, we moved the tactical funds to cash. When appropriate, these funds will go back into the market to capture the upside. As a result, we now have more cash than normal.
5. Current cash flows in GICs
After 2008, we realized that we should have between two and five years of cash flow requirements in laddered GICs. This will provide clients with cash flow while stocks recover.
6. We invest in dividend-paying stocks
Historically, dividend paying stocks have been excellent long-term investments. The Richard Dri Dividend Model selects stocks based on evidence that companies continue to increase their dividends. We also reinvest the dividends, hence lowering our average cost per share.
7. The virus can be contained, as we have seen in China, Taiwan and South Korea
Nationwide, we are all practicing social distancing. These efforts may require a complete shut down of the entire country for 30 days. This approach will “flatten the curve” and enable the medical system to cope with levels of infection in addition to ongoing demands. It will also slow the spread of the illness and accelerate the end of the crisis.
8. Government Stimulus
The federal government announced major emergency measures yesterday to ensure Canadians have money even if they are laid off or taking care of someone.
The package amounted to $27B in direct payments: emergency care benefits ($450 per week), emergency support ($400 or $600 per week), child care benefits ($300 per child), a six-month delay on student loans, taxes now being due in September, large banks deferring mortgage payments for up to six months, and seniors can reduce their RRIF withdrawals by 25%.
There was also help for small businesses: 10% of wages up to $25k for the next three months.
9. Experience
I lived through several difficult markets 1999, 2001 and 2008. Declines feel awful. They are very difficult. But they do pass.
10. The comeback
At some point, the market will stop going down, and we will look at reinvesting the cash from our tactical model back into the market to recapture some or all of our losses.
In conclusion
I know it is tempting to move out of stocks and hide in cash until things settle down.
Let’s play out a scenario.
First, if we sell today, we trigger the losses.
Second, we must decide when to get back into the market. In the past few weeks, we have seen increases and decreases of 10+ points on a daily basis. If we were to get back in late, even by a day or even a few hours, we could miss a jump of 10, 15 or even 20%. That’s not a sound investment strategy.
In short, because of our work last year, I’m comfortable with our clients’ asset allocations, and very comfortable with the companies we own.
As soon as the tactical market signals a new buy, we will deploy the cash.
Contact me anytime with questions.
Send me an email at richard.dri@scotiawealth.com.
Did this article resonate with you? What did I miss? Send me a note and let’s start the conversation.
The process of finding an Advisor can be overwhelming. Our process is designed with you in mind. Its structured framework helps you make an informed decision about engaging an appropriate advisor.
Call me if you in want to map out how you can Never Retire. You can also subscribe to our Never Retire Newsletter, contact us to order a complimentary book, register for one of our events, and call us to meet with a Certified Financial Planner. We offer you a range of services from a financial plan to investment advice or helping you take advantage of our investment models. Call me at 416-355-6370 or email me at richard.dri@scotiawealth.com.
source https://richarddri.ca/10-important-issues-to-keep-in-mind-that-impact-your-portfolio/
Dri Financial Group 