How I Lost $200K Without Losing Any Sleep
QCash, the 37 year old millionaire and regular guest writer, has humbly admitted to losing over $200,000 in the markets over the past couple months and explains why he’s not worried.
On or about August 31st, my net worth statement showed a value of $1,834,000. As of today (Oct 7), my net worth is $1,625,000. A drop of of just over $200,000 in less than a month.
However, I am not on a window sill right now pondering if I should end it all. In fact, I have been sleeping incredibly well. Why? Am I some sort of financial masochist? (Come on market, beat me, beat me, whip my investments like the bad boys they are!) No. In actual fact, I am disappointed but not despondent.
Here are 7 reasons why I’m not too worried about the current bear market:
How many times have we heard this old chestnut? But in actual fact, my losses would have been much higher had I been fully invested in growth stocks or equities. My portfolio includes real estate (both personal and through REITs), income trusts, mutual funds (though fewer than before), equities and cash. I would be remiss if I did not point out that other than through some balanced funds, I hold no bonds.
2) No Debt
Well, this is not entirely true. As I have mentioned previously, I have a HELOC that I used to purchase some of my income generation portfolio. The value of those investments is now less than my HELOC balance and if I were forced to liquidate my income generating portfolio, I would find myself in a little bit of trouble.
However, I have no other debts and the income from my portfolio more than covers my interest payments (which would be the minimum I would have to pay and are tax-deductible). Having no other consumer debt means none of my income is going to servicing debts.
3) I Don’t Rely on Capital Gains
My portfolio is structured to provide income through distributions and dividends. I am not one required to sell my assets to sustain my lifestyle. So the $200K is a paper loss, much as it was a paper gain a couple of months ago. What I do have to do is pay a little more attention to ensure none of my holdings are planning to cut or suspend there dividends/distributions. This requires a little more homework, but I am prepared to do that while all the blood-letting is going on.
4) Conservative Portfolio
When I decided to take super early retirement, I decided (or better yet, my wife told me) that she wanted to sleep well at night too. She is super risk averse (and she points out that we would have been further ahead if we put all our money in GICs :-) So, I have not made any investments more than 5% of my total portfolio (not withstanding real estate). To that end, should a company go under or stop distributions, I would be out a small portion of my overall monthly income.
5) I Can Still Work
I am young, energetic and still have earning potential. If I were in incredibly dire straights, I could go back to work full time or part time. I have that flexibility and I am not afraid of work. I just prefer not to :-)
6) Don’t Panic
In the words of the immortal Douglas Adams, “Don’t Panic”. The meltdown and bailout has occurred. This too, shall pass. The financial markets will emerge stronger and better regulated. The winners will continue to earn money and the losers will fade away. Banks will stop loaning money to people who can’t afford it and will have to return to sound business making decisions. Focus will once again return to emerging markets and we will all be forced to stop funding our standard of living on our collective credit cards.
7) This is not the US
I hate to parrot our Prime Minister, but at the end of the day, our banking sector is much more heavily regulated than the US. Our banks have some exposure to the ABCP market and sub-prime mess, but they were earning billions of dollars in Canada before they made the foray into that area and will continue to make billions of dollars. Most of the losses are write-downs which haven’t affected their cash positions. Mortgages they have written are generally insured by CHMC in high risk scenarios and they are covered.
Just my thoughts on the current state of the markets. I am not an expert, so take what I say with a grain of salt.
In the meantime, sleep well and dream of large bulls.