Global stock markets have turned challenging yet again.
Year to date, the Canadian Stock Market has dropped 13.1%, but has outperformed global markets which are down approximately 24%. The relative Canadian outperformance is largely due to Canada’s heavy weighting in Oil & Gas.
Downturns are inevitable, but since educated investors expect them, there is no need to panic. All investors have learned after the 2008 Financial Crisis, and more recently the 2020 Pandemic, that the key to successful investing in the long-term, is not to sell into a market downturn. If anything, if cashflow permits, a wise investor will increase periodic investments after markets have dropped 15% to 25%, or more.
Personally, during times of declining stock markets, I find it helpful to focus on the dividend income my portfolio is generating. During this recent stock market decline, TheAnswerIs.ca Model Portfolio dividend income did not decrease. It actually increased, and by quite a bit.
In Q3 2021, TheAnswerIs.ca Model portfolio generated $765 in dividends, and in Q3 2022, dividends increased to $910. That is a “pay raise” of 19%! That increase likely exceeds any raise you got at work this year and is also much higher than inflation.
With interest rates rising and the economy slowing, we could well be on the cusp of a recession. Importantly however, on a percentage basis, dividends typically decline much less than the total value of a portfolio.
Over time, dividends rise, and those dividend increases drive portfolio capital values higher.