Are we blowing up? I had a bunch of my clients call to see if this was the double dip that we have all been afraid of. The decisions or lack of decisions are in the hands of the central banks and politicians. I do however, know what worked for me in 2008. Here is what I did. It’ll work really well again now.
Set Up A DRIP (Dividend Reinvestment Plan):
All of my stocks pay a dividend to cushion the downside in times like this. Dividend stocks pay you to wait for times to get better. When the market went down like this last time, I had all of my dividends set up on a DRIP. That way as the market went lower I bought stocks as they got cheaper and cheaper. When the market goes back up you’ll have a higher average yield than when you had started. Win win.
Review What Works:
Take a look at what stocks that you had went down the worst. See which ones held up the best. If you look at the sector breakdown of the DOW Jones Industrial Average you’ll see that companies like Proctor and Gamble, Coca Cola, Johnson and Johnson, Walmart, McDonald’s, Kraft, and AT&T hold up the best. Make sure that you get more or have these guys in your portfolio. You’ll also get some yield as the market sorts itself out.
Review What Doesn’t Work:
Make a list of the stocks that got their faces ripped off. When the market moves back up be sure to get rid of your dead wood. Take the proceeds and buy what worked in bad times with a great dividend. The funny thing about the list of what worked in this kind of market is also a list of the companies that have been doing well in the bull market too. McDonald’s, AT&T and Kraft are all up year over year.
SELL Option Calls:
Either buy some of the great covered call products that I’ve mentioned in previous posts or do it yourself. When times are tough like they are right now, the option premiums that you’ll receive from the sold option calls will be really juicy. This will help build cash to buy even more stocks cheap and to offset the downward movement. If you sell option on your gold or oil stocks they are HUGE right now.
If you are not comfortable selling calls on your own. There are great products from BMO ZWB – BMO Bank Covered Call ETF or from Horizons – HEE, HEP, HEX, HES.UN, HEF. See my past blogs on them.
Just remember that this storm will pass. Set up drips, see what works, see what doesn’t and build cash by selling options. Trust your money and it’ll reward you when the times become better.
Dave
