hey guys it's Adrian here the Canadian in a t-shirt and today I'll be breaking
down how to invest during a stock market crash correction or a recession in the
past week I've been getting a ton of questions on the current state of the
stock market and the coronavirus people have been asking me should I cash out
now should I wait and see what happens or should I start investing so I decided
to make a video sharing my thoughts on the situation and I want to highlight
what you should do and what you shouldn't do during a market downturn
right off the bat I want to tell you guys do not panic
I repeat do not panic for the vast majority of you guys out there the only
way you will actually lose money right now is if you panic if you give it to
fear and if you sell your stocks at a loss the worst thing you could do right
now is to sell your stocks for some of you guys who are new to investing I get
it it can be scary to see the news every day and to hear that once again we've
had an unprecedented 10% drop in the market in a single day this situation is
fairly new to me as well the last time we had a true stock market crash was the
real estate collapse back in 2008 I was still in high school back then so I
didn't fully experience the fear and uncertainty of that crash since that's a
17 year old kid I didn't have any money to invest even if I wanted to so now
this is the first stock market crash which is actually impacting my money
this is the first time in my life where I log into my Questrade account and I
see red losses across the board in fact the first thing I see when I log in is
the summary page in big red letters I see that I have "lost" $4,000 in just a
few days I get that the knee-jerk reaction is to panic saying what do you
mean I lost $4,000 or I knew investing in the stock market was too risky and I
should cash out now before I lose everything but that's not what I'm doing
I'm not panicking at all and that's because I know that I haven't actually
lost any money the markets are down and my stocks are worth thirty percent less
than what they were just last week and I don't care I don't care about the
current stock prices for two reasons first that $4,000 loss is not real it's
an imaginary number that doesn't become real unless I sell if I don't sell my
stocks I haven't actually lost a penny second I
don't care about the short term performance of my stocks I'm playing the
long game I am only investing in money that I will
not need for at least ten years so let's start with the first point the worst
thing you can do right now is to sell if you sell right now you will lose money
but if you hold on to your stocks this stock market crash will not affect you
you will be absolutely fine the price of a stock in day to day does
not matter remember in my first investing video about the stock market I
said that there is no inherent monetary value of a stock the price of a stock is
only what someone else is willing to pay for it if someone wants to pay a hundred
dollars for a share that stock is now worth one hundred dollars but if people
are only willing to pay fifty dollars for that same share that stock is now
only worth fifty dollars that is what is happening right now people are panicking
and so they want to get rid of their stocks and cash out as soon as possible
they don't care about the price anymore they just want the safety and security
of holding cash in their hands and so they sell their stocks at lower and
lower prices desperate to sell it off before you know it the value of the
stock has dropped ten percent in a single day but nothing has actually
changed with the company itself it's still the same great company offering
the same great product or service it was last week
it hasn't laid off workers it's still earning money everything with the
company itself is the same it's just that now its stock price has plummeted
some companies actually will have the profits affected by this crisis for
example airline companies will have their earnings reduced with the recent
travel bans and energy companies will probably have their earnings affected
because of the drop in oil prices but these are still strong secure companies
and they will recover the only stocks that you should even consider selling
are companies that you don't think will survive newer and risky penny stocks
like marijuana stocks which were already volatile are now dangerously close to
zero and reaching bankruptcy I always want people to avoid these risky
speculative penny stocks in the first place but especially at times like now
if you sell these penny stocks now you will lose money no question but you have
to be honest with yourself do you think that this company will survive do you
think that this company will still be around two years from now if this
company hits zero you have lost everything it doesn't matter if you own
10 shares or 10,000 shares it's now worth zero I hope none of you guys have
serious money invested in these risky penny stocks but if you do it might be
worth selling these stocks now and recover at least a fraction of the
that you invested with and I hope you take this as a lesson that the stock
market is not a way to get rich quick again this is the only situation where I
would even consider to sell stocks right now for everyone else stay calm and keep
holding if you're invested in established and secured companies
companies that you know will be here 10 20 30 years from now
do not sell sure the stock price might be down 30% of what it was just two
weeks ago but that does not matter the only time it matters what your
investment is worth is when you want to sell what really matters is the number
of shares you own in a company and the number of shares has not changed if I
owned a hundred shares of TD last week I still own the same hundred shares of TD
today and I'm still receiving the same dividend from those hundred shares I
don't care about the price of each share as it goes up and down it's the same
principle as owning a house if you own a house you don't actually care about the
value of the house day to day you still own the same solid house the only time
you ever care about the value of the house is when you decide to sell it
let's say in 2008 when the housing market collapsed your house lost
$200,000 worth of value did you care? did that affect your house
at all? or the quality of life at home? no no one is forcing you to sell your house
at a loss no one reached into your bank account and stole $200,000 from you you
kept living in that same house year after year and after a while it
recovered its value the same thing happens with your stocks and ETFs until
you actually sell those stocks that loss is not real so hold on to your stocks
let them recover and in the meantime continue to collect those dividends the
second reason I'm not panicking about the stock market is because I don't care
about short-term performance I only care about the long-term I know that there
will be times when the market is up and times when the market is down the stock
market works in cycles roughly every 10 years or so there is a significant stock
market decline correction or even a recession that is normal and it's to be
expected I didn't know that the stock market would crash last week but I knew
that it would crash sometime and I also know that the stock market will recover
in a matter of months maybe even a year and then the market will continue its
overall upward climb looking at the US stock market the S&P 500 index you can
see that it has plummeted but only in the short term even though in short term
it looks like stock market has hit rock bottom but if
you zoom out a little you can see that the market today is actually higher than
it was in 2017 things look bad right now so sure in the short term of a few
months or a year yeah the stock market has lost money but
looking at three years even though things look so bad right now the stock
market has still made money in these past three years looking out further ten
years ago the US market today is worth more than double what it was back in
2009 that's why do not invest in the short term and don't stress out or worry
about the short term performance we only care about the long term growth over the
course of 10 20 30 years I've said it many times the money you invest in the
stock market should be money that you do not need and money that you will not
touch for at least 10 years if you're planning on making a down payment for a
house in a few years or if you're planning on paying your child's college
tuition next year do not invest this money in the stock market since in the
short term you might make a profit but you could also lose that money very
quickly but in the long term over 20 years you are historically guaranteed to
make a profit okay so I've talked about what you
should not do during a stock market crash but what should you do?
right now most people should do two things boost their emergency savings
fund and if you have cash, invest further in the stock market to buy those
ETFs and stocks at a huge discount first let's talk about the emergency fund
since day one I have always stressed the importance of establishing an emergency
fund in fact the very first investing video I ever made was the four steps to
become wealthy step number three in that video was setting up an emergency fund
and only after you have that safety net setup should you even consider investing
in the stock market your emergency fund should be a minimum of three thousand
dollars and if you have a family or kids that depend on you you should easily
double that this emergency fund should be able to sustain you for at least
three months if you were to lose your job and thus lose your paycheck tomorrow
you should always have this emergency fund topped up so that if anything
unexpected happens say your car breaks down you have to go to the vet or you
have to buy a new furnace you always have this money available to pay for
these emergencies you do not want to be forced to sell your stocks out of
desperation if you need two thousand dollars a day and you are forced to sell
your stocks to get this money almost all of your stocks are down right now so if
you sell you will be losing money this emergency fund acts as a buffer to
shield your investments from ever being touched and don't get greedy I'm about
to tell you that right now is one of the best opportunities in our lifetime to
invest in the stock market but do not burn through your emergency fund to
invest in stocks right now if anything you should boost your emergency fund by
around a thousand or two thousand dollars as soon as you can especially if
you are working in an industry which is directly affected by the Cova-19 virus
if you work in the tourism industry for a hotel airline or cruise ship or if you
work for a sports arena or at a university your work hours and your
income are very likely to be reduced in these next few months and your job
itself might actually be threatened if you are in that situation and you don't
know if you will have income next month do not invest in the stock market right
now don't sell any stocks but definitely don't buy any stocks either if you're
worried about your income now is the time to be extremely frugal tighten up
your budget and put all of your money into a high-interest savings account you
need to boost your emergency fund to get you by these next few months in case you
lose your job to add insult to injury the federal bank has recently dropped
their interest rates and so all the same as accounts out there have also dropped
their interest rates as of today some of the online banks I can suggest to park
your savings in or alternate bank motive financial and EQ bank all offer 2%
interest on their high interest savings account LBC digital offers 2.2%
interest and wealth simple cash which just dropped their interest rates
down to 1.4% in the next few weeks it's possible that these banks
will drop their interest rates even further but still if you are not certain
about the security of your job and your income in these next few months Park all
of your excess money in a savings account do not try to invest in the
stock market right now there's a good chance that you'll need this money to
pay your bills soon and a savings account is the only way to ensure your
money is safe but what if you're one of the lucky ones let's say your job and
income are totally secure you've already topped up your emergency
fund and you have a bit of cash on hand what should you do? well in that case
this market crash will be one of the best investing opportunities in your
lifetime almost every single stock in ETF in the US and Canadian market is
down right now these investments are down and again nothing has actually
changed with these companies they are still strong established and secured
companies which will continue to make money but due to the market
panic the stock prices have dropped by 20 or 30 percent if you're already
invested in these companies don't sell continue to hold on to these stocks but
if you have cash right now and you don't need this money for the next five to ten
years this is an incredible time to buy these blue chip stocks at an enormous
discount let's look at one of my favorite Canadian dividend stocks TD
toronto-dominion bank I've already talked about why I love to invest in TD
stock in my past video my top three Canadian dividend stocks everything I
said about TD stock back then is still crude today a month ago in February you
could buy a share of TD stock for $75 and each share of TD would pay you a
dividend of 79 cents every quarter so each share pays you a dividend of three
dollars and 16 cents every year and had a share price of 75 that equates to a
dividend yield of 4.2 percent which is awesome and well worth investing in if I
had $10,000 a month ago at $75 a share I could afford to buy a hundred and thirty
three shares of TD each share pays me three dollars and sixteen cents so in
total my investment would give me four hundred and twenty dollars a year in
dividends but now the share price of TD has dropped by over 30% to only $50 a
share this is a 30 percent discount of a high-quality blue chip stock this kind
of sale only happens once in a decade each stock still pays out the same
dividend of 79 cents a quarter or three dollars and sixteen cents a year now I'm
getting the same income but each share only costs $50 and so my dividend yield
is now much higher at six point three percent if I attend thousand dollars
today at $50 a share I could afford to buy 200 shares of TD stock whereas just
a month ago I could only afford 133 shares each of
these 200 shares pay me the exact same dividend of three dollars and 16 cents a
year and so my $10,000 investment now pays me six hundred thirty dollars a
year a month ago the same ten thousand dollar investment but only give me four
hundred and twenty dollars a year buying high-quality dividend stocks now at a
discounted price gives me a fifty percent increase in the passive income I
would normally expect from these stocks and that's just considering the
dividends this is also a great opportunity to maximize your capital
gains let's say hypothetically in 2030 TV reaches a share price of $100 per
share last month we invested 10
thousand dollars at $75 a share and so we bought a hundred and thirty-three
shares now let's consider if we invested $10,000 today at a discounted price of
$50 a share we would be able to buy 200 shares of TD fast-forward to the year
2030 and every single one of those shares are now worth $100 it doesn't
matter when we bought those shares or how much we paid for them every single
share of TD is now worth $100 so if we invested last month we have a hundred
and thirty-three shares for a combined value of thirteen thousand three hundred
dollars but if we invested today at a discount we would have two hundred
shares for a total value of twenty thousand dollars ignoring dividends just
looking at capital appreciation if we bought those shares today at a discount
and sold them ten years later we would have made an additional six thousand
seven hundred dollars in capital gains putting this boost in capital gains and
dividends you can see that investing in quality stocks now at a discounted
price is a huge opportunity to build your long-term wealth of course that
doesn't mean you should invest in any cheap stock at a discount only invest in
quality secure companies that you know will be able to survive this market
downturn you might be thinking yeah that sounds like an ideal case but what if
dividends get cut that's a valid concern some companies even established ones may
reduce or cut their dividends if the revenue is affected but let's look at TD
TD has never missed a dividend payment in a hundred and sixty two years and
they are not going to start now plus TD has an extremely healthy dividend payout
ratio of only forty four percent that means that only forty four percent of
TD's profits go out to investors as dividends leaving the company with 56
percent of its net income to grow and protect itself even if TD does see
reduced profits these next coming months with such a low payout ratio TD could
see a huge drop in profits and they would still be able to comfortably
afford dividends and maybe even increase their dividends to attract further
investors if you're looking for some solid dividend stocks and dividend ETF
to invest in especially right now click the pop up at the top right to check out
my stock pick recommendation videos the last piece of advice I can tell you guys
is that if you have a large pile of cash right now don't spend it all at once
it's very true that almost every single stock in ETF is down right now so
investing today is almost to be better than investing a month ago
but we don't know if we have reached the bottom yet next week the markets might
start to climb back up but they can just as easily fall further down I would
never encourage anyone to try to time the market it can't be done don't sit on
the sidelines with a pile of cash waiting and waiting for the absolute
bottom because you'll never be able to find it by definition you won't know if
you're at the lowest point until things start climbing back up and by then
you've already missed it my advice would be to spread out your available cash
throughout the next several weeks a lot of people have been asking me this
question if you have $10,000 in cash right now my advice would be to invest
two thousand dollars this week invest another two thousand dollars next week
and another two thousand dollars the week after that invest this money over
the course of the next five weeks next week the prices might go up but the
week after prices might plummet even further
no one knows when the bottom of the market will happen so don't try to time
it instead spread out your investment over the course of the next few weeks
and you're smoothing out the volatility of the market you'll end up with a nice
average value of the market and this strategy is called dollar cost averaging
some days this average value will be better than the current market some days
it will be worse but overall it is a safer less stressful and more rational
way to invest if you're not sure how to actually buy stocks or ETFs click the
pop-up at the top right check out my Questrade tutorials where
I give a step-by-step walkthrough of how to buy Canadian and US stocks using
Questrade my favorite online broker and if you'd like to get started with
Questrade click my referral link in the box below and you'll get $50 in
Commission free trades when you sign up that basically means your first ten
stock trades would be Commission free that saves you $50 plus I'll get a small
referral bonus as well I apologize for the length of this video I know I threw
a lot of information at you I've received countless questions from you
guys and I hope I was able to answer most of them the take-home message is
this do not panic and do not sell your stocks right now the only reason you
should sell your stocks is if you think this company will not survive and if it
won't be around five years from now everyone should take this time to boost
an emergency savings fund especially if you're worried about your job and future
income for everyone else take advantage of this opportunity and buy quality
stocks and ETFs at record level discounts but don't spend all your money
at once spread out your investment over the next several weeks and of course
the most important thing is to be safe and keep yourself and your family
healthy thanks for watching guys be sure to LIKE comment and subscribe if you
found this video helpful every thumps up in comment really does
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page be sure to tune in to my next video where I'll be breaking down what is an
RRSP and how to use an RRSP to minimize your tax bill and maximize your
long-term growth thanks everyone and I'll see you guys on the next
episode of the Canadian in a T-shirt bye guys