Wednesday, 21 February 2018

Dealing With Down Markets (Portfolio Buy)


 "Prices can go down as well as up" - the standard disclaimer for investors in securities. It's all fun while prices are rising...but sobering when markets are heading southwards.

After a pleasing Santa Rally in December, January and February have been horror stories, with a worldwide pull-back in share prices. The DIY Income Investor portfolio is back to the value it was a year ago.

How to deal with this kind of knock-back?

My view is that this kind of situation is a psychological problem as much as financial one - moreover it is to be expected if you are investing over any extended period. So I don't expect any sympathy :-).

Instead I look at my income stream, which seems stable enough - indeed with a slight increase over the last couple of months. And, of course, most of the fixed-income investments (which make up around half of the portfolio) are doing fine.

This is the great psychological benefit of income investing - because I am not primarily chasing increased portfolio value I can remain reasonably sanguine about the current state of the market. Of course, I am hoping - eventually - to increase the capital value of my investments, as this can drive additional investments that increase income.

Personally, if I know the market state is likely to be down, I just don't look at the prices too often. The main thing is to be happy with the sustainability of your investments and to keep an eye on how the businesses are doing (as opposed to the share prices).

Oil's well that ends well

As there was some cash idling in the portfolio I decided to put it to work, while market prices were a bit suppressed. As usual, I looked initially at 'filling in' the existing holdings in the portfolio where there seemed to be value (and income) on offer.

This time the choice was relatively easy. I've held BP (LSE:BP.) through thick and thin (since 2009). It currently has a forecast yield of over 6%, an improving dividend cover and a reasonably p/e ration (around 15). Also, watching the price of fuel on the petrol station forecourts tells me that the price of oil is moving upwards again. So, BP seems like a fairly safe income play.

[Buy price: £4.80]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


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