Most people invest in the stock market to make money. I invest in it very reluctantly because I am afraid to lose money. However with fixed income investments returning very low returns recently, I have put some money into individual stocks most of which I purchased in 2011 and 2012. I picked stocks based on some professional advice which are considered “defensive.” They don’t have much potential to grow but they are expected to not drop as much during a correction as the overall market. Now in fall 2014 we’re experiencing our first real market correction since my purchases so I thought it was time to check how my defensive stocks are doing during this down turn.
Why Would I Invest in Defensive Stocks Instead of a Broad Market Index?
I actually do have money invested in some “buy the entire stock market” index ETFs. Most of that money is invested through corporate defined contribution pension plans.
I have savings, too, though, which are not necessarily intended for my retirement or even for the long term. With luck, they will stay invested for more than 7 years but if our lives take any unexpected turns they may be needed before then.
This portfolio is NOT intended to produce the same gains as, say, the TSX S&P ETF XIC. By trying to reduce losses I have agreed that I will NOT get the huge positive capital gains that an index like XIC can achieve. My goal is to get a slightly better return than GICs from dividends while not expecting to get much, if any, capital gain but hopefully to also experience little if any capital loss. (Obviously, I’ll experience a large capital loss if there is a major market collapse and I sell my stocks.)
This is NOT a portfolio for someone looking to end up with the most toys before they die. It is my personal choice because I am extremely risk averse but I’m also finding GIC returns unacceptably low at this time.
Yes, I know dividend stocks capital values may plummet as interest rates rise. I will have to accept whatever yield I chose when I bought the stock as potentially my maximum lifetime yield (unless there are dividend increases.) I may not ever be able to sell my dividend stocks to recover my capital. It’s like a type of annuity, though, where I might be able to retrieve some of my capital if I give up the income stream.
Anyway, as I said at the outset, I’m just curious whether they are behaving “defensively” during this market slump or not.
A Review of Some Defensive Stocks Performance During a Market Slump
This is a partial list of some of the defensive stocks I have invested in. For those who are interested, no, it does not actually only show the ones that are faring well: the others are faring the same or better. I’m just not sure whether I would be breaking any rules if I shared the entire portfolio online, so I’m not.
This chart compares prices at the close on October 14, 2014 versus on September 3 2014 when TSX was in the 15 600 range.
|Company and Symbol||Price at the close on 2014 10 14||Price at the close on 2014 09 03||Percentage change|
|Bell BCE||47.74||45.27||up 5.5%|
|Bank of Nova Scotia BNS||67.22||66.30||up 1.4%|
|Canadian Utilities CU||38.75||39.59||down 2.1%|
|Enbridge ENB||48.63||55.20||down 11.9% (more than the market)|
|Fortis FTS||34.57||33.95||up 1.8%|
|KBro Linen KBL||39.76||39.55||up 0.5%|
Those changes don’t mean much, though without a comparison to how the TSX is doing. So I took a look at both the TSX composite and an ETF, XIC.
|Company and Symbol||Price at the close
on 2014 10 14
|Price at the close
on 2014 09 03
|TSX||14 036.68||15 657.60||down 10.4%|
If I had invested $1000 in each stock on September 3 2014, the portfolio would now be worth $5951, which is about a 0.8 % loss. (Not including dividends and distributions)
If I had invested $6000 in XIC on September 3 2014, the portfolio would now be worth $5365 which is about a 10.6% loss. (not including dividends and distributions)
The Outcome of the Defensive Portfolio
So the portfolio is doing its job of making me happy by not losing as quickly as the TSX.
And the steady stream of dividend income has been significantly higher than what I could get from investing in GICs. (Please note that I have not replaced my GIC investing with this portfolio: I have a portion in these stocks and a larger portion in GICs for security.)
Do I Recommend Defensive Stock Picking for Others?
I’m not a financial planner, a financial analyst, or a financial advisor.
I’m just a taxpayer who is writing about what we do with our money. For us, this is a reasonable way to invest. For others, it may be the worst thing they could do short of trying to skydive without a parachute.
You must find your own best investing plan. You may want to talk to a real professional for ideas: Internet websites like this one are only supposed to give you glimpses into other people’s money matters from which you can glean ideas to analyze and (usually) discard as inapplicable.
- Why Investing in Dividend-Paying Stocks May Work for Some Nervous Nellies
- How Dividend-Paying Stocks May Mimic Some Aspects of an Annuity
Do you have any money invested defensively? How has it withstood this mild market correction? Please share a glimpse of your strategy with a comment.