2018 – Is it time for a crash?

Last week was apparently the worst week for the stock market since the BREXIT announcement back in 2016. My portfolio took a hit with some of my favorite stocks crashing down. In particular, one of my REITs (Real Estate Investment Trust) crashed 12% while announcing a dividend cut.

The company is called Wereldhave and is a Dutch Shopping Mall REIT. I don’t have a large position in it and see an opportunity here to add more and to lower my average purchase price, but yes, it hurts. Having said that, the dividend yield is still fine and it will keep creating passive income for more years to come.

About passive income

Now this is just my 2nd article and I didn’t really start describing in detail yet about what I am doing here. If you like to see my introduction, take a look at my previous post. To sum it up: My goal is to reach financial independence and to have the freedom to retire early. Or FIRE.

Passive income is one of the main tools to reach my target. The reason is simple. It is hard to talk about freedom if you are depending on a job, a boss and a paycheck. If you have to worry about food, shelter, medicine and education, then it can hardly be called freedom.

Also, while you might not worry about all these things as long as you have a job, you might start to worry when your company gets in trouble, when your job becomes redundant, when you get older, when the economy goes down… there are countless reasons that may create a situation in which you will have to seriously start to worry about your income.

So getting to the point where this freedom-restriction is not your major concern anymore is pretty vital. True freedom doesn’t work without financial independence. Passive income streams are therefore crucial, and for me, the way to get there is through investing.

What to do when the market goes down

While 2016 and 2017 were great years for investors, 2018 might be a rough one and I actually think that we may see a correction in some sectors. My portfolio may drop as I do have some speculative titles in it, but while some people spend their money on avocados, cappuccinos, and clothes, I prefer to pour it into dividend-paying equities that will hopefully support me in a not too distant future and start to cover my cost of living.

Any crash in the stock market is, therefore, an opportunity to purchase more stocks, lower my average purchase price for equities that I already bought in the past and set up new positions that will bring me closer to my target.

So let’s see what happens. Apple came down in price nicely despite reporting record profits. Starbucks got back to “normal” prices. AT&T is still in a good dividend yield range, Realty Income is back to a 5% dividend yield, IBM seems to turn-around and getting stronger in its cloud business section. In Europe, my all-time favorite BDC (Business Development Company) Aurelius announced a 5 EUR dividend which at the current price is a 9% yield – and 10% at my entry point, Vodafone is speculating about takeovers, and BT Group just announced a very robust business. While some people might get spooked, I am pretty optimistic and all these equities now yield over 5% on average, some up to 10% a year.

Corrections offer buying opportunities

I am looking forward to the correction and some amazing buying opportunities. So is it time for a crash? I don’t think so. Most companies actually are reporting record earnings and the bigger players are swimming in cash. Stock valuations in Europe are very moderate and while in the US they may seem high for some, the tax cuts and improved economic conditions will soon let this numbers go up. Dividend yields are good and might even get better after the correction. There is no reason to panic. Unless something really terrible happens in the world, a crash is not very likely anytime soon.

However, I am not an oracle so just in case the crash happens anyway: You better keep some cash on the side to get in the market right after the crash. Now we know very well that it’s almost impossible to time the market and to generate optimum profits with our limited time, knowledge, access to information and speed of execution. But, it actually doesn’t matter.

As a simple rule, I tend to look at it like this: There are companies which I simply know will be around in 10 years from now like i.e. the titles I mentioned above. It doesn’t matter if the world economy crashes, I KNOW there will still be a Starbucks, people still need to make phone calls and access the internet and premium brands such as Apple are very hard to kill.

These companies are seldom truly over-valued, and no matter how much they crash, as a result, their valuations will only get better. 10 years from now, will be 10 years back in the future, and you will most probably sit on triple-digit earnings and enjoy rising dividends for your passive income stream.

Disclosure: I am invested in all the shares mentioned in this article.

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