Opportunity for the well prepared
Well it’s finally happened. The record breaking 11 year long bull market has come to a screeching halt as stocks tumbled more than 30% in the fastest pace ever recorded. Last Thursday the TSX dropped 12% in a single day, the most in recorded history. But this should come as no surprise if you’re an avid reader of this blog. We saw this coming miles away. 😀
I began warning fellow investors two years ago explaining the early signs of an economic downturn. But since there were no red flags I didn’t expect an immediate market correction. Here’s an excerpt from that 2018 post.
Playing a strong defense game
So how did I prepare? Well last summer in 2019 I shared my thoughts on which asset classes would likely perform relatively well in a low interest rate environment. I wrote that adding defensive investments would make a lot of sense going into 2020.
So I had called out bonds, real estate, and precious metals as good assets to have, at least in the short to medium term. This is partly why I started to look for a rental apartment to purchase last fall.
Finally I warned readers several months ago of 10 signs that an economic downturn was just around the corner. My suggestion was not to sell everything and wait for the crash to happen, but instead to rebalance and reduce market risk. Here’s the final paragraph from that post.
Which brings us to the present. Both Canadian and U.S. stock markets are down about 20% year to date. Oof. 🙁
It’s a good thing we had time to prepare for this downturn since the signs were plenty and hard to miss.
So let’s see how my prediction and planning paid off so far. 🙂
- As of writing this post gold is up 7.5% so far this year in $CAD.
- Bonds have done well. The iShares Canadian Universe Bond ETF (XBB.TO) has returned +2% year to date.
- Real estate is on the rise. We can use the Canadian Apartment Properties REIT (CAR.UN) as a proxy for residential real estate in Canada. This REIT has gone up 4% year to date. Personally, my new real estate purchase is earning me 6.25% a year in net rental income, after all expenses. Furthermore, the median rent price in the city of my new condo is up 15% this year. 🙂
As I said last year, governments will go deeper into debt, print more money, and all of this will benefit holders of bonds, precious metals, and real estate. Owning these types of assets – which I have about $500K in right now – will add stability to a portfolio during a major stock market correction. The key is to use economic data to align my investments in order to limit downside risks. 🙂