The coronavirus-induced stock market crash has created generational buying opportunities. This pandemic has given us lemons to make lemonade. Although some equities have rebounded from their March lows, there remain deals everywhere. If you play your cards right, you can score some serious steals. What follows is a winning strategy that is crushing the S&P 500 index now and for years to come.
Up until early March 2020, our portfolio was built mainly around index funds. We also held a few stocks (they were ok) and real estate investment trusts (REITs) for income. We were comfortable getting average market returns. Suddenly, something big happened. The coronavirus-induced market bear showed up. Everything changed, forcing us and many other investors to reconsider our investing approach.
Our pre-coronavirus portfolio
- A large-cap ETF (Tech)
- A mid-cap index fund
- A small-cap growth index fund
- An international ETF
- 6 REIT stocks
- 3 stocks
1. Implement a keep-but-trim approach.
As with all bear markets, some sectors will be losers and others winners. Although small caps seem to be making a comeback, the coronavirus has not been too kind to them (see table below courtesy MarketWatch). The Russell 2000 index, which tracks the performance of America's smallest companies, is down -16.45%. On the other hand, the S&P 500 index is down -5.77% YTD and up +10.62% for the year. One way to maximize returns is to follow market trends. As of right right now, the investing landscape seems to favor growth. We strategically (in stages) and significantly trimmed a large portion of our small-cap allocation and some of our mid-cap holdings. We then re-invested those proceeds towards our large cap holdings and other stocks.
|Index Name||Index Type||YTD (%)||1 Year (%)|
2. Sever ties with perpetual laggards.
In our case, the laggards were mostly REITs. You should never be afraid to cut ties with under-performers. Most of us, at one point or another, have had securities in our portfolios that we thought would eventually come back. But they only sank our portfolio deeper into the red, unfortunately. We eliminated ALL REITs from our portfolio. We used the proceeds towards other non-REIT stocks.
3. Add income.
Because capital appreciation can be hard to come by during these turbulent market times, we decided to add some income.
- We added a strictly pure monthly dividend ETF yielding 11.5% annually. YTD, we're up 7%.
- We added 4 solid dividend stocks, including Abbvie (ABBV). Those stocks have a track record of increasing dividends and favorable capital appreciation. YTD, we're up 15% with ABBV (in 2 months).
We're not only getting income from our dividend ETF and dividend-paying stocks, but also from our index funds.
- Large-cap annual yield: 1.10%. This low yield is acceptable to us, given that the bulk of our returns is through capital appreciation. YTD, we're up 19.20%.
- Mid-cap annual yield: 1.67%. YTD, we're at -1.66%. During the height of the pandemic, we were down as much as 35%.
- Small-cap annual yield: N/A. Relatively new small-cap growth fund. YTD -3.12%. Our small-cap, like most small caps, got hammered heavily during the pandemic. We have since recovered most of the losses.
- International ETF annual yield: 3.71% (more than the S&P 500). YTD -6.20%. We have recovered most of our losses, as we were down by nearly 40%.
As of 5/31/2020 (YTD), we raked in a grand total of $956.89 in dividend payments. Although we get dividend payment from our portfolio, our main focus is growth.
4. Add more growth.
Index funds provide average returns. They disappoint during bear markets. As the market index the fund tracks goes, so will the returns. We're not comfortable with average market returns. We want maximum returns as much as possible. To achieve this, we added more growth to our large growth ETF with 10 different stocks from the technology, healthcare and alternative energy sectors.
The bottom line
The coronavirus pandemic has created an unprecedented opportunity to create generational wealth. Although securities have somewhat rebounded from their March lows, there remain yet opportunities galore. We took advantage of these unprecedented bargains to beat the market. Our efforts have already been fruitful. As of 05/31/2020, we're up over 11%, while the S&P 500 is still in the red YTD. We anticipate the winning trend to continue well beyond the current pandemic.
As a token of our appreciation for reading this article, we want to highlight 2 of the many stocks that comprise our portfolio: The Trade Desk (TTD) and Abbvie (ABBV). If you follow us on twitter, you already have access to 2 other top picks that are crushing the S&P 500 index by a landslide! One such pick is up 49.5% YTD, while the other is up 69.5%!
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Disclosure: We are long TTD & ABBV. We wrote this article ourselves. It expresses our opinions. We do not receive compensation from the companies highlighted, nor do we have any business relationships with those companies. This should not be construed as investing advice. This article may contain an affiliate link to an investment product. We may receive a commission through this link when you join the partner. Our full disclaimer.