Strategy & Options for Slowing Economic Conditions
When the warning signs approach for slowing economic times it is important to consider what investment options that are available to the Fund and which would be the best option to take that would suit the present and future financial times.
It was suggested by my accountant to undertake a risk assessment on this situation so when the time arises one has a reasonable knowledge on deciding where to from here.
By investing in equities I have been able to live comfortably off the dividends and at the same time obtain a reasonable growth with my capital that is keeping ahead of inflation.
My normal investment strategy when economic conditions are riding on a level field is to hold at least 2 years worth of cash that would see me through.
Not forgetting that dividends would be still coming in, so 2 years cash may stretch out to 3 - 4 years with the dividends & franking which may see one through a downturn.
I would like to invite comments from those that wish to on these risk management thoughts that I have put together as I feel it is incomplete and has been derived from my thoughts & limited experience only.
Do nothing and leave portfolio as is;
Advantages: 1) although capital value will diminish, dividends will maintain at a reasonable level during downturn provided stocks remain healthy and downturn is not lengthy.
Disadvantages: 1) possible portfolio damage by holding crippled companies that have been affected by financial downturn.
2) not being cashed up means you don’t have the ability to buy cheap stocks when market bottoms.
Sell part of the portfolio and hold onto stronger survival type stocks (holding 50/50 split between stocks & cash)
Advantages: 1) spreads the risk of financial damage to the Fund
2) provides the opportunity to sell stocks that have been non performers that will suffer in the downturn
3) provides an opportunity to buy back healthy stocks that have not been financially damaged
Disadvantages: 1) loosing part dividend & franking credit income during the sell off and buy back in period
2)possible long wait to re-establish income from dividend stream
Sell all of the portfolio and hold only cash.
Advantages: 1) selling at reasonable prices maximising Fund value
2) ability to buy back and hold healthy stocks that have survived the downturn
3) possible less personal stress as portfolio value falls away
Disadvantages: 1) timing the market when buying back in
2) possible long wait to re-establish income dividend stream
