Past market history shows market corrections (declines of 10% to 20%) have occurred an average of every two years since 1932. The last pull back was happened in 2011. Last two years, stock market goes up all the way to top. So, according the past history, we are due for a big drop. But I am not sure when this will happen. Thus, I am preparing for the next stock market correction.
The information in this web is not recommendation and should be used for informational purposes only.
I managed to build almost six figures portfolio in two year periods using my saving and low interest rate credit card debts. Yes, I did take a modest risk and borrowed money to invest in stocks. My portfolio gained more than 40% in last two years, and is generating almost $3460 yearly passive dividend income.
My net worth will decline $10 000 if my portfolios drop by 10%. $10 000 means 4 months or 85 days or 680 hours of my day job salary 🙁 . How to prepare for it? Very simple 😀
When I started to invest in dividend stocks in 2012, I only looked for high quality blue-chip divided stocks and found many of them with attractive price.
But, I didn’t have enough saving to buy them.
Luckily, I received a credit card offer from a Canadian bank with 0% interest rate for 12 months. I accepted the offer, and within two weeks I was able to pump $10000 into the market using the promotion offer.
I also applied for few other credit cards in different bank with similar offer and bought stocks in many sectors to diversify my portfolio. Banks usually allow me to extend the offer when I get close to the end of promotion periods (I guess I have an excellent credit score 😀 ).
The risky moves helped me to build more than 65K net worth in little over two years period.
For last few months, I couldn’t find any value stocks, so I let the market grow itself and started to pay down the debts using the dividends from the non-registered account and my own money (salary). And, I reinvested all dividends in my registered accounts (TFFSA & RRSP). I still have some debts left in my cards.
Now, you got my point how I am preparing for the next market correction.
Past market history tells you market corrections have occurred an average of every two years, but the same history also tells you that large blue-chip stocks have returned almost 11% annualized since 1932.
So, how I am getting ready?
Preparing a shopping list with the stocks that I like to buy at low price and sharpening up my buying power by paying down the debts. When the market finally sinks, I can scoop up bargains.
What to do if we don’t have any market drop?
I have a strategy for that too. You’ve probably heard of dollar-cost averaging.
If I don’t see any market correction this year, then I slowly pumps up money into the market at periodic intervals using my saving, and keep my low interest credit cards as cash reserve.
I am beyond excited to find your site. I have had my rrsp contributions come off my paycheck for years. That was going to one institution and then transferred to my preferred bank. The funds were then invested into two mutual funds. Which were both basically bond funds. To make a long story short, I was very upset to learn this. I missed out on a lot of oppertunity. Anyways over the last two months I have done a ridiculous amount of research on creating a primarily canadian dividend portfolio ( with US and international exposure) that will provide me with passive income one day. Your strategy is exactly what I envisioned to work with. I’m starting with half your net worth right now, but am extremely positive about my choices and my potential. I’m in the final stages of creating my portfolio and look forward to seeing you progress on your goals. Please keep up the amazing site and your regular posts.
Thank you Mark for stopping by and sharing your experience with us, and glad to see that you started to take control your own financial decisions. When you invest, do your own research and understand in & out about each companies. Plus, stick with quality investments with long-term approach rather than chase yields or high flying stocks.
And, very important, keep learning by reading good books, financial new papers/websites and blogs.
Get advices from people, but make your own decisions based on your goals, investment strategies, risk tolerances and your financial situations.
Wish you all the best in your success 🙂
If you are invested fully , the correction will be too sudden for you to get out of the market because nobody tries to catch a falling knife !! You will eventually sell but at a loss of 20% or so ! I don’t see the strategy that allows you to sell your equities at all time high . Unless you are a prophet it’s not easy to pin point tops or bottoms !!!
Hi Arhat,
Thank you for stopping by,
I have no idea to sell my equities any time soon. I am a buy and hold investor. My strategy is buy high quality dividend growth stocks, hold them for decades and collect growing dividends.
Regards,
Dollar cost averaging is a great long term strategy that will create lasting wealth and more importantly, sustainable income. Good luck with your journey. There are some pretty good values starting to surface.
MDP
Thank you MDP,
As you said, dollar cost averaging is the great long-term strategy. That’s why, I use portion of my dividend to invest in some stocks.
Best wishes with your dividend investing…
Good stuffs and googd approach to face the next market drop in your point of view.
But, if I were you, I would have paid off all the debts before start to invest. You have built a solid portfolio, but a big market wind may wipe-out everything… Sorry for the negative thinking….. Actually, I don’t have the guts to take risk as you.
My porfolio doesn’t gain as much as yours because of my bond holding (70% bonds), but it will stay above the water if market drop like 2008.
Good luck
Great strategy dude 🙂 Pick up top performing companies with cheap money (or even free sometimes) and slowly pay down the debt while your investments grow! The long term future certainly still looks bright. I also have a watch list of stocks to buy up when the next correction hits. I think you’re right that we are overdue for a pull back. That’s why I’m being really selective about further stock purchases at this point, and have actually been increasing my fixed income portfolio instead as you know.
Thank you Liquid for stopping by,
You made a good move by increasing fixed income right now. I guess I need to learn more about buying individual bonds instead of bond ETFs.
In this current situation, paying down some debts is the only profitable move for me. :D.
Best Regards,
Interesting strategy with the borrowing to invest. In such a low interest rate environment, that might not be a bad idea at all. I would caution only but the most saavy investors to do the same, however.
I’m personally not very interested in market corrections. Since I’m investing primarily in individual companies, I just build a list of companies that I would like to own and then wait for them to hit prices that I would be willing to pay. If they never reach that point, well, then I’m just sitting in cash until something comes along.
I’d rather sit in cash for 3 years than reach for something that doesn’t meet my requirements (either for company quality of value).
Best of luck, Finance Journey!
Nate
Thank you Nathan,
Warrent Buffet said sitting with cash is the worst thing. You should let the cash work you..
Cheers,
Hi Tong,Depending on passive iomcne alone could be enough if your portfolio has reached a critical mass. E.g. Warren Buffet can just relax and share leg everyday while collecting hundreds of millions of dividends every year. Because he has a humongous portfolio.Of course, I am not as rich as him. For me, critical mass is after the $200k mark. That is when the returns can really compound exponentially.Regarding your question about whether it is enough for the next 20-25 years. While, this is quite subjective. For a frugal person, $500 per month is enough. For a spendthrift, $5000 per month is also not enough. It all depends on what kind of lifestyle you lead.