Retirement: The Future-Proof Portfolio For Young Investors - Decimated

Summary

  • Statistically, every long term investor needs to go through a couple of bear markets.
  • Still, the speed and violence with which my portfolio has been decimated by the current crisis hurts.
  • Even though it can be difficult in these times, I recommend staying the course as a long term investor.
  • I will take a look at the damage which has been done to my portfolio.

In these times of economic collapse and the unavoidable bear market, being an investor is hardest. Even though I am a long term investor, the damage which has been done to my portfolio hurts, especially because it has been done over the course of such a short timespan.

Right now it is more important than ever to consider the long term: the COVID-19 pandemic will eventually be overcome, humanity will survive and after a while, companies will continue to thrive again. Currently though, the damage is real, and might not only be reflected in share prices. If you are a regular reader of my articles about the Future-Proof Portfolio for Young Investors, you will probably know that I place some emphasis on steady and growing dividends. Make no mistake: some dividends will be cut, and I have no illusion that my portfolio will be entirely spared from this, though I hope it won't be too bad.

Damage inspection

Without further ado, let us take a look at the current state of my portfolio. On the right column I list the total gain/loss, since I think this is a more relevant metric than the 2020 gain/loss. Please keep in mind that this portfolio was initated in January 2018. All numbers in the value column are in euro.

Name Ticker Shares Value Weight Total gain/loss (including dividend)
Consumer
Unilever UL 43 1.903,61 3,29% 2,00%
Disney DIS 22 1.994,11 3,45% 4,06%
Archer Daniels Midland ADM 83 2.663,43 4,60% -4,46%
Diageo DEO 69 1.834,52 3,17% -3,40%
Accell OTCPK:ACGPF 42 556,08 0,96% -40,04%
Armanino Foods of Distinction OTCPK:AMNF 488 1.090,20 1,88% 17,09%
Amsterdam Commodities OTC:ACNFF 92 1.506,96 2,60% -17,65%
Industrial
3M MMM 17 2.191,46 3,79% -24,68%
BASF OTCQX:BASFY 37 1.524,03 2,63% -44,06%
Union Pacific UNP 18 2.385,82 4,12% 21,64%
Kone OTCPK:KNYJF 44 2.237,84 3,87% 21,99%
Eaton ETN 44 3.026,64 5,29% 8,10%
Vestas Wind Systems OTCPK:VWDRY 35 2.636,17 4,56% 36,81%
Healthcare
Medtronic MDT 29 2.335,30 4,04% 23,19%
Roche OTCQX:RHHBY 10 3.061,19 5,29% 66,60%
Gilead Sciences GILD 15 1079,34 1,87% 15,74%
Johnson & Johnson JNJ 17 2.115,82 3,66% 13,90%
Novo Nordisk NVO 43 2.356,99 4,07% 21,52%
Utilities
Consolidated Edison ED 31 2.287,14 3,95% 22,09%
National Grid NGG 109 987,77 1,71% 10,28%
Ørsted OTCPK:DNNGY 21 1.780,53 3,08% 88,50%
Technology
Corning GLW 110 1.922,75 3,32% -30,76%
TSMC TSM 54 2.429,40 4,20% 28,67%
Infosys INFY 134 990,76 1,71% 4,13%
Automatic Data Processing ADP 20 2.459,29 4,25% 31,00%
Tencent OTCPK:TCEHY 45 2.053,52 3,55% 4,85%
Telecom
Singtel OTCPK:SGAPY 994 1.643,92 2,84% -9,98%
REITs
Realty Income O 46 1.961,56 3,39% 8,70%
Ventas VTR 44 946,36 1,64% -40,58%
W.P. Carey WPC 19 968,99 1,67% 9,49%
Hannon Armstrong HASI 56 939,07 1,62% 7,67%
Total 57.870,61 4,97%

After a fantastic 2019 performance, the portfolio is now down to a gain of about 5%. That is, since January 2018. Of course, the current bear market also hit my portfolio hard, but when you take a broader view, the damage in stock prices has been limited.

Individual stock performance

Individual stocks have been highly divergent in their share price development lately, I will discuss some names which catch my eye below:

  • Among the consumer companies, Accell, the Dutch bike producer, has had a dreadful performance lately. First, the company locked in some losses by selling their US operations, and after that, they were hit by the fallout of the COVID-19 pandemic. The company had already halved their dividend, but now decided to cut it completely for this year. This is the first dividend cut in my portfolio, and it`s an ugly one. I have to keep a close eye on this company to estimate whether they can possible return to normal growth shortly after the crisis.
  • Industrials 3M and BASF have continued to underperform. I added shares to both of these investments beyond the starting €2,000. Dividend-wise, 3M is quite safe, while BASF is on shaky grounds. They recently increased their dividend and are sporting a juicy 8% yield now, but I would not be surprised if they would cut it next year due to the crisis. I do expect both of these companies to outperform on the long term.
  • All healthcare companies have performed well, though most share prices have taken a hit by the COVID-19 crisis. All except Gilead, which has gone into the green for me basically for the first time since I bought them. After a slow start, the Swiss pharma giant Roche has performed wonderfully.
  • Utilities look boring and slow, except for Ørsted, which was a shot in the rose.
  • Technology companies are performing in a divergent way; Corning has continued to lag after I repurchased them last summer.
  • The REITs of this portfolio have truly suffered since the pandemic. Spurred by a low interest rate and a search for yield, many REIT prices were pumped up to unsustainable heights until we were hit by COVID-19. Ventas has been absolutely decimated, losing more than two thirds of its value since September 2019. Hannon Armstrong was also hit bad, but after a huge rally last year the damage looks less severe here. WP Carey and Realty Income were not spared, but being two of the safer REITs, these two companies lost less value than most others.

Dividend cuts?!

I already mentioned that Accell was the first company in my portfolio to entirely discontinue its dividend payment. I'm not happy with this, but I get it: the company is not being threatened in an existential way at the moment, but in case things get worse it is a good idea to save a bit more cash. If things go well again, they can always decide to pay this as dividend in the future.

It is to be expected that more companies in my portfolio will lower or cut their dividend. Here is a list of the companies I am most worried about:

  • VentasRight now, the company has a yield of about 14%. Yes, that's FOURTEEN PERCENT. For this company, this is a sign that the dividend is at risk. A deeper analysis of their dividend safety is beyond the scope of this article, but let's just say that I would not be surprised if they decided to cut the dividend.
  • Hannon ArmstrongShortly behind Ventas, there's Hannon Armstrong. I haven't done due diligence on their finances and at 8%, their dividend yield seems much less alarming. But please consider that they are hit by a double whammy: the COVID-19 crisis and the oil crisis. The huge decrease in oil prices makes sustainable projects less attractive currently.
  • WP Carey and Realty IncomeI would expect that these companies need to lower their dividend payments if too many renters go bankrupt. A big factor in this will be how long the shutdowns continue.
  • Singtel / Amsterdam Commodities / Vestas / BASFAll of these companies value a consistent dividend growth, but they have proven in the past that they are not afraid to cut their dividend if necessary. Reasons for the cuts could be disturbances in their supply lines in the case of Amsterdam Commodities, fallout from the low oil price in the case of Vestas and a relatively high payout already coupled with the crisis in the cases of BASF and Singtel.
  • DisneyDisney has a low payout ratio, but I do not consider their dividend to be rock-solid at this point. Their parks are hit full-force by the shutdowns, and cinemas are also closed. Their online business will likely thrive, but this is only a part of the company. And since they recently took on quite some debt for their takeover of Fox, I would not entirely rule out a temporary dividend cut.

As far as I can estimate now, I would say the other dividends in my portfolio are relatively safe from cuts. They will suffer from COVID-19 too, but the crisis needs to deepen in a big way for them to cut their dividends.

Stick to your plan

As I did during the previous two years, I will stick to my plan. I am building this model portfolio for my retirement and do not need to sell anything. I am living well below my means and luckily still have my job. Even if I'm laid off as a result of this crisis, my low expenses mean that I could survive for quite some time without having to resort to selling my investments. If you would ask me for a single piece of advice for starting investors it would be this: first make sure your personal finances are solid, only after that you can start paying attention to building up a portfolio.

I expect this bear market to get worse. You cannot shutdown the economy without some major economic damage, and though most governments try to mitigate this with massive stimulation packages, the damage will be big. But I think it is warranted if it means we can save many people from dying from this terribly virus.

As part of my plan, I will invest a total of €3,000 in the portfolio every half year. I chose this number because it should be a doable figure to save every half year for people with a relatively good job. Also, in 2019 my portfolio paid me €2,000 (excluding taxes). I do not automatically reinvest these dividends, except for the semi-annual €3,000 investment. My rule of thumb is to buy investments for this amount of money every winter and every summer, and this winter I have been a bit lazy with it. Technically I am already late, but I will shortly start investigating new options for investment and will update you all about this in my next article. Please stay safe and healthy.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

This article was written by

I am a private investor from the Netherlands in my mid thirties. I have a very long term view and with my own investments I focus on an awkward combination of stable, dividend-paying investments, cryptocurrency, and growth. My favorite holding period is forever, but I am looking for interesting opportunities which might or might not become a success as well. I am writing for Seeking Alpha because I like to share my insights and enjoy the interaction about investing ideas. My writing is mostly about stocks I own, and others I am interested in.I try to approach every possible investment with a great deal of common sense. Every investment has bulls and bears, and I am always searching for a balanced view, which includes aspects of both. I also try to write balanced articles which provide new insights.On the picture you can see my cat, who sadly died a couple of years ago. I like to think that my investing mimics his behavior: most of the time not doing a lot, finding the best places to lie down (enjoying solid dividend-paying investments). But sometimes for a brief period of time he can become very agile and active, just like what I should do when I notice great investing opportunities (though I'm skeptical about market timing).
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Disclosure: I am/we are long all stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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