“The time to repair the roof is when the sun is shining.”
– John F. Kennedy, former US president
Whoa, now there’s a quote that I believe has really shown its worth over the last few months.
The pandemic has really revealed who’s been swimming without their trunks on. Initially there was a lot of fear surrounding the banks and their ability to weather this storm. I believe, that for the last few months, we’ve been in the “eye of the storm”. But were our banks prepared?
If you recall the global financial crisis of 2007-2009, banks, American banks in particular, were the bad guys. But the effects rippled out internationally. Canadian Imperial Bank of Commerce (TSE:CM), was one such Canadian bank that was punished for taking on risky investments, similar to what was unfolding in the US.
For the past decade, they’ve been extremely conservative with their investments and have developed a reputation of being the most cautious bank. Shareholders have punished this stock, as it traded at a relative discount to its peers due to this.
It’s almost like they were preparing for exactly this kind of scenario to unfold.
I believe that it’s important to plan for risk events. It’s why people have emergency funds. It’s good to have general plans, some idea of what to do when something happens. It’s important to be flexible in your approach. Things can and do change.
Here’s how I’m preparing for a potential double dip global recession in the pandemic era:
1. Stay healthy
Did you know that the etymology of the word “wealth” is something like “well in health”? Personally, I found that the times where I was the most happiest, and the most successful, also happened to be times when I was the healthiest.
For the past 6 months, I’ve been keeping up physical exercise twice a day to help stay healthy. As we prepare to enter winter months, with fears of fiscal cliffs, a burgeoning second wave of the pandemic and what I believe will be an unnaturally turbulent Q4 for the stock markets, I am now more than ever convinced that being able to stay physically active and healthy is the most important thing I can do for myself.
2. Reduce debt loads
If you’ve been following my net worth updates, you might be aware that my debt load is approximately 30% of my current net worth. While this is a huge improvement where my debt load was equal to 90% of my net worth back in March/April, this shrinking debt load came from growing my net worth, as opposed to lowering my debt.
My debt load is still quite manageable, but I will be working to aggressively lower it over the next few months.
3. Reduce expenses
Entering into March 2020, I had largely already done this as I was planning on renting a place and needed to clear up room in my budget to do so. I did things like removing subscriptions I didn’t need and finding cheaper gym memberships. There’s a few more things I can do, which I started this month.
If I absolutely needed to, I could reduce my debt payments down to the minimum.
4. Remain invested
I had a very specific investment strategy from March until now. It was one that meant I would largely “miss” on the tech explosion. I’m okay with this as my portfolio has still grown by over 100% beyond my principal contributions. I am very grateful and quite content with this performance.
Considering my net worth at the March lows was $6000 CAD with $3000 in assets and $3000 in cash, I am very content.
Since the March lows:
- My assets have grown 1572%
- My net worth has grown 1038%
Since the start of year:
- My assets have grown 943%
- My net worth has grown 623%
My investment strategy has allowed me to lower the emphasis I place on portfolio valuation. It was never the metric or performance indicator I was targeting, though it seems important to others for some reason.
I put together a list of companies that I’d like to purchase should there be another +/- 30% correction for my portfolio. Ultimately, I don’t know if there will be another correction anytime soon, but I’d rather be prepared with a game plan.
How are you planning for a double dip recession?
