Portfolio year-end evaluation

As the year is coming to an end, it’s time for a portfolio re-evaluation. I do this every year in order to determine what I did good, bad, or just wrong, and what I can and should do better in the next year.

Keeping a cool head

I wrote it many times. When it comes to investments, you need to keep a cool head and take emotions out of the equation. You need to stick to your thesis and know that you’re in for the long run no matter what. But this is easier said than done.

When your shares are moving up for a while and you see your profits surging by 20%, 30%, or even 50%, you might feel the urge to sell your shares just to make sure that you can actually keep that profit. I call this phenomenon “negative greed”. It’s greed because you want to keep the profits, and you want to make sure that your account gets credited before anything happens to it (like another downturn in the market). But it’s “negative” because once the shares are sold, you have obviously no more shares that could grow even further from there. You secure profits, but you lose chances for more profits.

Similarly, when your shares are moving down, it’s hard to stay cool while watching your account going negative into the double digits. When a recession hits and all you can see is a screen with red numbers on it, thoughts will crawl into your head. Thoughts, that question your decisions, making you wonder whether that whole thing is just a big scam that you fell for, and that you should have better listened to all your non-invested friends who think you’re nuts for being an investor.

On both counts, I did quite well in 2020. While I experienced all the emotions and drags as described above, ultimately I kept a cool head. The only shares I sold were those of Apple (AAPL) after the stock-split. They soared by over 150% and I sold some to be able to buy a few new shares of other companies which I considered to be good opportunities. What did I buy?

New investments

  • Wereldhave – A dutch shopping mall operator who suffered dramatic losses in its share price in recent months and who is due for recovery once this whole Covid drama is over
  • Starbucks – The company is showing over and over again that it’s one of the best in the market. The pandemic didn’t hit it as hard as one would have thought, and it will come out stronger in the aftermath
  • Veolia – After watching a documentary on Netflix about drinking water (the show is called “Explained”, highly recommendable) I decided to start focusing more on water-related investments

I also started a savings plan into an ETF. It’s called “Xtrackers MSCI World Information Technology UCITS ETF 1C” and it’s focused on tech-investments world-wide. 100 Euros a month that have started to flow into this ETF, completely paid by the dividends I receive each month.

One more word about Wereldhave. I had this company in my portfolio in the past, and I sold it at a loss when they cut the dividend and when the covid crisis hit. But I kept it on my watchlist and observed the stock movements on a weekly basis. When I noticed that the stock stopped moving further down (after dropping more than another 50% since the time when I sold them) and the company announced a new management team as well as a full restructuring of their business model, I got back in. The shares are now up 40% since I bought them.

Dividend growth

In terms of dividends, Starbucks and Veolia will contribute to my annual income in 2021 as they both pay stable and each year growing dividends. Wereldhave used to pay a strong dividend until the crisis hit. They canceled all dividends in 2020, and I don’t think the company will be able to pay out any dividends in 2021. I expect them though to start paying dividends again sometime around 2022.

My dividend income shrank in 2020 compared with 2019. This was mainly due to my largest and also most disappointing investment: A company called Aurelius (AULRF). It’s a business development company (BDC) which I purchased back in 2018. It was showing not only superior growth opportunities but also had an amazing dividend yield, and since 2018 it developed into my single largest holding position.

Unfortunately, it also became my most disappointing investment. The share price dropped by almost 70% and the dividend was cut down to zero in 2020. However, in the last couple of weeks recovery started to kick in. My losses are now at -56% and given the recent business reviews, I am quite confident that shares will continue to tick up. Also, the dividend should recover in 2021. But I admit, this one is my single largest nail-biter.

Overall it looks like my dividends year on year will reduce by some 11,60%, and this despite the growth of my total invested cash by 8,99%.

Monthly passive income

The total decline of dividend payments by 11,60% is obviously not great, but overall, my monthly passive income remained largely stable. My total dividend yield on investment came down to 3,22% from 3,97% in the year before. For 2021 I expect it to move back up into the 3,5% to 3,9% range.

Considering the scale of the covid crisis, I see my thesis of investing and putting money to work in the stock market confirmed. And 2021 is almost guaranteed to produce similar or better results, with most stocks set to soar once the vaccine distribution starts kicking in.

From Bad to Worse

When it comes to the pandemic, there are some good news and reasons to be hopeful. Several vaccines are either in their final development stage or about to get approved. Right on time for the end of the dreadful year of 2020. 2021 can only get better. Or can it?

We still have 5 weeks for 2020 to go, and no matter what happens until New Year’s Eve, this won’t be the end of the challenges. Challenges with the pandemic, and challenges with the economy. Production, distribution, and the re-opening of borders will take time. So will the recovery of the economy. And we are not talking about days or weeks. We are talking about months and years.

Why things might get worse

Markets tend to be optimistic, but corporations tend to be cruel – by perception. Despite the silver lining on the horizon, chances are that most companies will continue cutting costs, reducing payrolls, and doing whatever necessary to survive. But not only that. Many companies see this as an opportunity to push through decisions that may have not been possible without such a crisis.

Some of these decisions might be radical, but necessary and possibly have been even urgent for a while. Upgrades of IT systems. Reviews of procedures. Reorganizing teams and the abolishment of established structures. But there is also a downside to it, especially when it comes to the “reorganizing teams” part. People are losing jobs.

Same old or not?

Now don’t get me wrong. This is nothing new. Maximising revenues and minimising expenses is what every business does. That’s how you generate profits. This was the case before the pandemic. During the pandemic. And it will stay with us also after the pandemic. It’s simply how every business works.

But when corporate number-crunchers tell you that everyone is replaceable and that the numbers still don’t look good enough, then you might want to get creative in your response. Short-term requirements for a quick brush-up of the balance sheet might become costly in the long-run. And as everybody “on the ground” knows well, some people are truly not replaceable.

So, while cutting expenses and especially payrolls is nothing new to us, the magnitude of the cuts in the current environment is immense. And many of these cuts are not just until this pandemic is over. Many of these lost jobs will disappear permanently.

Things are not over for the service industry

The tough times are not over, and especially the service industry will continue to suffer. Hotels, bars, restaurants. People will vacation less abroad. Companies will continue keeping business travel at a minimum. Since so many people depleted their savings or borrowed money, they will eat out less and keep parties and events on the low.

As my readers know, I am managing a hotel. For the last 12 years in this industry I was never worried about my profession, and I never worried about my job (which includes finding a new one when I felt it was time to move on).

But this time it’s different. This is the first time that I am not confident in receiving the opportunity to extend my contract (which is due in May 2021). And it’s also the first time that I have doubts. In the case that it should not be renewed, finding an immediate new opportunity will be a serious challenge.

Many of my colleagues have already lost their jobs. Many of them are smarter and more experienced than I. It’s therefore only logical to assume that I might follow in their footsteps rather sooner than later.

One more reason to keep preaching financial independence, and the purpose of having multiple income streams. And practicing it.

What a year

Today is the 14th of November 2020, and what a year this has been! With only 6 weeks to go and all the bad news going on, all I want at this point is for it to end.

Whatever your idea or opinion about the Coronavirus might be, we have to acknowledge plain facts that it had an immense impact on literally the world as a whole. This is beyond anything my generation experienced so far.

Jobs were and are being destroyed, incomes diminished, entire industries shut down, and thousands of people are still dying across the globe. And just to be clear: Whether it’s a direct or indirect count, if the virus triggers the death, then it’s on Covid to me.

Since I am working in the hotel industry, I am directly affected by it. In order for my business to survive, I need to cut expenses, reduce jobs, reduce salaries. It hurts. It’s many tears and many broken hearts. Many tough decisions every single day. And despite having the promise of a vaccine now visible on the horizon, we still have a few more months of pain and suffering ahead.

Also let me share with you this: As a business insider in an executive role, I can tell you here and now that this won’t get better any soon. Even post-covid. For most, the jobs that were cut aren’t coming back. The recovery of the service industry, the largest industry in the world, will take years. In order to survive cost cuts will remain in place until further notice.

Financial independence has never been more important

What I am sharing and trying to explain above is that the world is not going to get really significantly better any soon. And even if, how do we know that there won’t be another outbreak in one, two, or five years from now?

We have learned that there is no such thing as invulnerability. There is no such thing as total job security. And when times get really tough, even the best employers might be forced to make some tough choices to the detriment of employees.

Business owners face even greater risks, especially when they operate on thin margins and have not sufficient funds to survive prolongued periods of time without a regular income.

So what are our choices? How can we financially prepare for such an event?

There aren’t many choices, frankly, and there is no single solution. What we have to do is to create layers of protection. To create multiple income streams. And being invested in the stock market is one such strong layer. Also during the current crisis, it has again shown to be a reliable protection for tough times.

I am not talking about the value of my shares. I am down 25% in my portfolio so far. What I am talking about are dividends, my passive income stream.

Let me compare it with my salary, which is currently being cut by 25%. Next month it will be probably around 30%. At its peak, the cut was at 40%. But my dividends have decreased by only 11% year on year. And while I am not certain about my salary, I am quite confident for my dividends to fully recover next year.

Some of the most reliable dividend companies have not changed their policies and kept paying the same or even increased amounts throughout the crisis. This has again reconfirmed with me that for those who seek financial independence, being invested in the market is essential.

This crisis has been a huge reminder that we need to take responsibility for our financial well-being into our own hands. We can’t always rely on others, not to mention governments.

And it’s not just about the money. It’s about having that pressure off your chest, knowing that you have one more layer of safety, one that will contribute to protecting you and your loved ones when times are tough. This feeling alone is beyond any monetary value.

Breaking Rules

Nothing is as it should be this year. 2020 will go down in history as one of the worst years for my generations (X / Y – I am right on the brink).

Highest unemployment as far as I can remember across the globe. People are restricted to travel between countries, in some areas even between cities. Foodbanks, charities, and NGOs are stepping up and doing what they can to get people through hard times, even in the richest and most developed nations. Medical supplies are running short, equipment gets scarce. And governments are printing cash for people like there is no tomorrow.

Every weakness of our economic systems has been exposed by now. The mantra of a small government and an unhinged economy has been crushed to pieces. Whether it’s Germany, the US, UK or Thailand: Without government support it would all collapse.

It’s a terrible situation, but we will get through this, as humanity always did. There is light at the end of the tunnel, and I am confident that we will thrive again once this is all over.

And having said that, as bad as it is, it’s also a great lesson and experience for us. Instead of lamenting and complaining, we have right now the opportunity to analyze the situation and to think about how we can handle a similar occurrence in the future. Because we know that this wasn’t the first, and certainly won’t be the last pandemic that we will have to deal with.

Financial independence should grab more spotlight than ever before

The current situation showed lots of weakness in the structure of our society, especially to those who are in the rat race. As the crisis triggered massive unemployment, salary cuts, and put people in danger of losing access to their basic needs like shelter, food, and healthcare, it has never been more obvious that the rules we follow are flawed.

People are talking about jobs, minimum wages, worker protections. Protections from evictions, free medical support, and other measures to help all of us getting through the challenges of the pandemic. And it’s all good and right. We need to work, we need to have our rights protected, and we need a framework of rules to make sure those in power don’t abuse those who are not in a position to protect themselves.

Unfortunately, the same rules that protect us are also the rules that limit our opportunities. They push us into the rat race, into the dependence on people who employ us, and on governments that care for us. We give away some parts of our freedom and receive in return limited protection that helps us to make it through the days ahead.

But those who really want to get at least a slice of their freedom back, they got to break out of the rules and take ownership of their future. It’s especially situations like the current crisi, when financial independence becomes more important than ever.

Being financially independent means that you can afford to have a shelter without relying on the government, that you can put food on the table without relying on charities, and that your health is protected. Financial independence is not about getting rich. It’s about freedom.

The steps for reaching financial independence are only a few:

  • Earning as much as you can
  • Spending as little as possible
  • Saving and investing the surplus
  • Building passive income

Only four steps that explain it all. Simple and while not easy, definitely achievable with the right mind-set, plan and determination. And the benefits are immense. Not only may it allow you to retire early from your regular job. Achieving financial freedom will also empower you to pursue other paths and passions which you might have not considered previously due to financial commitments that couldn’t be neglected.

Even more importantly though, it will also prepare you for hardships, and situations as we are experiencing right now. It’s undeniable that those who build up emergency funds that cover 6-12 months of expenses, or who have passive income streams, are significantly less worried while the virus is causing panic and havoc across the world.

The FIRE movement is just a smart thing to do

When you explain the idea of financial independence and the FIRE movement to people who never thought about it, you will hardly find anyone who would disagree with it these days. There is nothing about massive unemployment, stagnant wages, and deteriorating economic conditions that would encourage people to go back to the old days.

And this is not a one-off event. It will happen again. Maybe it will be another virus. Maybe something else. But we know that hard ships are part of the equation throughout our lives. So wouldn’t it be a smart thing to do something about it? To prepare for it?

As my readers know, I am promoting investing in stocks. And surely, many companies got in trouble and had to cut or reduce their dividends, hence also impacting my passive income. But what this crisis showed me clearly is that while there is no 100% protection in this kind of environment, the odds are still clearly favouring investors over regular workers.

I work in the hardest hit industry of the pandemic: I am a hotel manager. And while my salary was cut by up to 40% as my hotel had to close for a few months, my passive dividend-income went down only by 9% on average year to date so far, and I expect it to remain on that level.

If you ever had doubts whether FIRE is for you, these doubts should be gone by now. And whether you invest in stocks or real estate, or any other way that generates passive income streams, it should be (or become) a part of your plan.

Keeping investing in difficult times

There is a lot of “happy talk” from governments around the world promising a swift recovery and promoting a way back to a “new normal” on the immediate horizon. However, when listening to politicians we always need to keep in mind what their incentives are. Politicians have a vast interest in painting positive pictures because their positions and their re-elections might depend on it.

In times of crisis, it is better to listen to other voices, and in particular to businesses. Not to their press releases, which are also often overly positive to keep investors patient and calm. The more relevant information is flowing in the background: Are they hiring people or did they freeze their payrolls? Are research and development projects being continued? Did they request their financial partners to extend credit lines? Are assets being sold off or do they continue to add value with acquisitions? Are they scrambling to get through the crisis, or do they take the opportunity to eradicate weak-points in their business models?

You don’t need to DO the research

For large companies, you can trust that somebody is doing this research for you. Financial magazines, newspapers, analysts, online blogs. There is a lot of work being done by many people out there. All you need to do is to find this research, to read it, to evaluate it, and after reading a few of these sources, to form an opinion based on the information you received.

You can do this for individual companies, but as an investor, you definitely should do this for entire markets. The world’s most famous and successful investors read a lot, and the majority of what they read are assessments, opinions, and evaluations of products, services, trends, and opportunities.

People like Warren Buffett, Bill Gates. You don’t need to like them or to necessarily agree to their ideas and positions. But you should acknowledge that they have a significant amount of knowledge about what is happening in the world. They use this knowledge for their decision-making process, where to invest, which project to support. Which idea or business model, or charity offers the best chance of success, adding value to the market, to investors, and to potential customers or recipients of the product or service.

The picture is pretty bleak

Looking at what is happening in the markets right now, the picture is pretty clear. And pretty bleak. We are in a recession, one that might last a few years.

Almost every colleague of mine is on a salary cut, furloughed, or anxious that he might get into a challenging situation in the next few months to come. Companies in the travel sector are obviously heavily impacted, but also other sectors experience similar challenges. Job cuts, sales of assets, and project delays are mentioned daily basis in newspapers around the world. And while some economies started to slowly re-opening, cash-flows are still very far away from where they were in 2019. The numbers for the first half of 2020 will come in and will be reported in the next weeks to come, and it’s pretty safe to say that there will be some shocks ahead to those who kept listening to the happy talks of politicians.

All this doesn’t mean that you should stop investing

As I mentioned in a previous article, this could nevertheless be a great opportunity for investors. Every crisis has survivors and losers. And survivors usually come out stronger every time when they are challenged and pushed to improve, to re-invent, and to innovate. From my point of view, this crisis has pushed us into new investment territories by emphasizing the importance of sectors that were neglected in the past.

Technology is already a clear winner (again), but it’s worth taking a deeper look into it. Some areas of technology will shift into a stronger focus than others. Cybersecurity for example is such a sector. Work and freelance platforms are another.

Producers of hygiene products and business which focus on health & safety can expect long-term benefits for the years to come. But the same goes for companies which not many had on their radar like waste management systems, and water supply and filtration technologies. You know where all your germs go to every time you shower or visit the toilet, right?

Plenty of opportunities in every crisis

When you read enough, gather a sufficient amount of information and knowledge, and adapt your thinking to understand that there are opportunities in every challenge, then you will quickly realize that, crisis or not, there is no reason to ever stop investing.

The only limitation I would see is when you are running out of time. When you get old. But by that time, your portfolio should be the last worry you have. By that time, I would hope that you have had a successful investment history and that you can happily retire on your monthly dividend income.

Buying great companies at a fair price

Yesterday I watched an interview with Warren Buffett. It was actually from February this year, but I hadn’t that much time to focus on such a long single video then. The interview went on for over 2 hours. Now, with working from home and my hotel closed, this was an opportunity to seize.

Warren Buffett is a fascinating individual. Humble, simple, outspoken but more than often speaking in riddles. I watched several of his interviews and speeches in the past and what strikes me every single time is that he constantly keeps repeating the same 2 core messages.

His first recommendation for the average investor is to simply purchase an index fund. Not spending too much time with picking individual stocks. Not pretending to be smarter than the market by spending hours and hours analyzing shares with some sophisticated metrics. Especially when this time can be better spent doing something else.

For those who prefer to purchase individual shares, however, he does have a second piece of advice. And he keeps repeating this one over and over for many years.

Buy a great company at a fair price

As people who don’t understand the stock market like to refer to it as just another form of gambling, the fact of the matter is that when we purchase shares, we are actually becoming co-owners of that particular business. We are taking a stake in that particular venture, for the good and for the bad side of it. Warren Buffett puts, therefore, the investment thesis down to a simple formula: Do you believe that the business you want to buy will exist and do better in 10, 20, or 50 years from now?

If the answer is yes, then you should invest in it. Of course, you should still do your due diligence, research some more details about the management, structure, and check on the valuation, but these are not the key factors. The first thing to clarify is whether the company has a solid business model, whether it offers solutions to problems people have and will remain to have, and if it’s smart enough to do it in a sustainable and profitable way.

Obviously, this is not the “get rich fast” approach. And as he once famously stated, his advice is being constantly disregarded or misinterpreted because “nobody wants to get rich slowly“. Nevertheless, this approach is what real investing is all about and how he became one of the richest people on the planet.

There are always great companies at a fair price – but especially so during a recession

Every crisis offers opportunities for smart investors. With markets in panic mode, stock prices of even the best companies are often being dragged down together with the rest of the market. The now expected recession and downturn will be no different. It might be therefore a good idea to put some cash aside, and to closely observe companies that you believe have a bright future ahead. It might be your opportunity, to purchase a great company at a fair price.

About emergency funds

This post is probably 12 months late. As we are in the middle of a global pandemic, people are losing jobs, lives. But even more are coming to realize that they miss something truly important: An emergency fund.

I got to admit, I am also not a great role-model here. Over the last 5 years, every penny I got was being invested right away. Therefore I have not built up a proper emergency fund. This is changing now.

How much is enough?

I read several surveys from Germany and the US last year. While I don’t remember exactly the numbers, they were overall pretty similar in their final assessment. A majority of citizens (of each of the countries) are not prepared to handle even smaller unexpected (emergency) expenses out of the pocket. How small? We are talking about 300 Euros or 350 USD.

I was honestly shocked by reading about it, because 300 Euros is very little, especially when we are talking about the US or Germany. For most people, it wouldn’t be enough to cover monthly rent, groceries, let alone a potential hospital bill or car repairs.

So obviously 300 Euros is not enough and wouldn’t qualify as an emergency fund. An emergency fund is meant to offer us protection in times of real need. When something happens that threatens our 3 basic needs (shelter, food, health), possibly over a prolonged period of time.

It needs to be therefore large enough to cover our regular monthly expenses for a specific timeframe. Most financial advisors recommend 3 to 6 months.

Therefore, to determine the size of your emergency fund all you need to know is about your monthly expenses and multiply this amount with a minimum of 3 months. If you are a cautious type or consider yourself for whatever reason to be more at risk, you might want to multiply it with 6 or even 12 months.

How to get there

Of course, you are not supposed to put this money aside right away. If your monthly expenses are around 1.500 Euros, it would mean that your emergency fund should be at a minimum of 4.500 Euros to cover expenses for 3 months. If people can’t get 300 Euros out of the pocket, how can they save up 4.500 Euros?

The solution to this is of course time, consistency, cautious choices, and the occasional sacrifice.

If you are saving monthly for a certain financial goal, a part of that monthly savings needs to be redirected towards your emergency fund. When you get a salary raise or a bonus payment, you might want to skip the celebrations and put the money into your emergency fund. If you are a coffee addict, how about skipping two cups of those soft lattes each week and putting 10 dollars each week in your emergency fund instead.

This step by step approach might take time, but unless you have an emergency every few months, you should be able to get to your goal within a reasonable timeframe.

The last option is to take on a side-gig. Sacrificing a little more time for a few months or a year might prove the right choice down the road. Having an emergency fund in place will protect you not only by covering any expenses that might unexpectedly pop-up. It will also protect your investments and other financial assets. Because you won’t get under pressure to sell them when money becomes an issue.

Keeping it liquid

An emergency fund needs to be liquid, which means that it must be easily accessible and not tied up to anything. Usually, you will, therefore, keep it in cash, on a simple savings account, or as a fixed deposit which can be easily withdrawn.

I have decided to split it. I keep one month of expenses in cash, and over the next 6 months I will set up a fixed deposit account with enough money in it to cover another 3 months of expenses.

No matter which way you chose, but having some money on the side for the next pandemic, the next wave of cost cuts in your industry (meaning when you get furloughed), or the next car accident, is surely worth the effort.

Who gets all the money?

As I mentioned in my last post, investing makes a lot of sense for people who want to retire earlier, safer, and with a higher degree of protection than one would have with a regular job. This is applicable to basically everyone.

I explained this with the distribution of all the freshly printed cash that is being pushed into our economy. This is especially true in times of a crisis as we are currently experiencing. The difference in the amounts of cash that ends up in the hands of ordinary people, and in comparison with how much of that money goes to companies, is astounding.

But don’t rely on my word for it. The ones who know about this best are obviously the ones who get all the money, and I recently stumbled upon an article in my Flipboard account about that topic that explains it further very well.

You can find the entire article HERE, but let me take out and quote the most important paragraph of the read:

“All the signs are that coronavirus will increase inequality even further. The government is accumulating debt to subsidise the wages of the employed and self-employed unable to work because of the lockdown. Businesses are taking out loans to keep afloat. This debt is being used to pay bills and rent to those who own assets.

The money goes to those who own assets

Now, The Guardian is not my favorite paper but every now and then there is a good article. This article also has some weak points that might be debatable, but in the essence, this paragraph as highlighted above explains it really very neatly. I underscored the key points above.

Governments are printing money, issuing bonds. Interest rates are being pushed down to make loans cheaper thus more attractive. And all this money, trillions of dollars and euros, is ultimately being pushed to and ends up with those who own assets.

It’s your choice to make

I know, it’s easy to get offended by this system. It’s easy to blame it for all the problems in the world. But as I learned early on in my career, complaining solves nothing. You need solutions. Just complaining for the sake of it doesn’t help anyone. You need to have a solution, some viable alternative. And the fact of the matter is that currently there are no alternatives to the system we live in that would assure us to end up on a better path.

Politics aside, everyone has a choice here. You can be outraged, you can complain, and you can think about alternatives, go into politics, and plan for a better future. Or do nothing.

But in the meantime, it might be smart to own some assets.

About multiple income streams

People all around the globe face unprecedented challenges. Well, at least it’s unprecedented for my generation (Gen X), and certainly for Millenials and anyone younger than them. Millions are losing jobs, are forced into quarantine. Many are in dire need of some kind of assistance, whether it’s cash, food, or both.

Here in Thailand, we just passed through the first month of the lockdown. When I drive through the streets of Bangkok or Pattaya where I am currently working, I see people lining up (with social distancing) for food support from the government and from some private institutions.

The Thai government is issuing cash support of THB 5.000 per month to those who need it most. It’s not much, but it’s enough to survive on a very low bar. Together with the support from private institutions, NGOs, and hundreds of those who are more fortunate and who are volunteering to support, I have no doubt that the country will get through the event.

I am also always astonished by the amount of support among Thais in times of crisis. My wife is getting postal packages from friends and family with food, face masks, and snacks. We pass on the favor by sending things to others who need it more than us. I am fortunate enough to still have my job and my monthly salary intact, albeit slightly reduced.

About income and unexpected situations

But not everyone is lucky. Similar to other places around the globe, unemployment in Thailand is on the rise on a massive scale. This is dire in a country with very limited governmental social protection in place, and where most people live paycheck to paycheck.

Which brings me to the main point: Unemployment means for many people to lose their only source of income. And we can see right now more clear than ever, how many people’s lives really depend on their job. Being without work and without an opportunity to find new employment within a short time has now turned into an existential threat for millions of people.

Also, only very few of them could have even imagined such a situation two or three months ago. Yes, some might have an emergency fund and savings to ride out bad times. But would they have expected that they can lose their job, their income, and their benefits within such a short period of time? Hardly.

Building up multiple income streams

This is where the lessons of FIRE become such a powerful reminder, because having multiple, passive income streams is what FIRE is all about! The whole point of becoming financially independent means not being dependent on your job.

Building up passive income streams is best done by investments. Sure, the stock market is crashing and we are sliding into a recession. But out of the 33 companies in my income portfolio, so far only one of them has canceled the dividend, and only two announced to reduce it for this year.

Thanks to this, I am never worried about losing my job. Sure, my monthly dividends can’t compare with my salary, but that’s not the point. The important part for me is that I won’t need to rely on government support and on charities. I will be able to fulfill my main responsibility of providing shelter, medical protection, and food to me and my family on my own.

Personally, this is a very important factor to me, as this defines my perception of freedom and independence.

Who gets the money

And just to add another layer of understanding of why investing is a safer bet than your job, let me explain here one thing. While our savings and jobs are being destroyed, a crisis like this also generates unimaginable amounts of money. While stock valuations may be nosediving right now, governments all across the globe are printing cash like there is no tomorrow.

And where does this cash go to?

In the US, every US national is receiving a one time check of USD 1.200. There are 328,8 Million people in the US, so this sums up to roughly 395 Billion USD. Yes, it’s a lot of money.

But you know who gets more? Companies. Especially the big ones. They get bailed out when they get in trouble, they receive grants, and the FED is reducing interest rates so they can borrow money almost for free. This may sound very negative, but I don’t mean it that way. That’s just how it works for plenty and a variety of reasons.

The important thing is that you have a choice to make. Do you stick to your job and when you lose it, wait for your one-time check of USD 1.200? Or do you invest, and build up multiple and passive sources of income?

Having the knowledge that governments across the globe will put significantly more effort into protecting your investments and your sources of passive income (in comparison with taking care of you directly), this shouldn’t be a complicated choice to make.

Is this THE opportunity for the next decade?

People were talking about the possibility of an economic collapse for a few years now. Over the last two or three years, whenever I visited a bookstore (yes, I do that) I saw countless books from economy professors, advisors, and other professionals talking about the next crash. I read some of them and I agree that there are many valid arguments that could justify a market crash. But I don’t ever recall reading anything about a possible impact of a pandemic on the world economic system.

wood black and white office business

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I should probably have read the “Gates Notes” more often. Bill Gates is obviously a guy you want to follow. He is smart, he is rich, and he likes to share his ideas. And yes, we should always be open to learning from the best, whatever our personal opinion about that person might be.

Bill Gates had a Ted Talk back in 2015 presenting a simulation of a very comparable scenario and urging governments worldwide to invest more into possible preventive measures to fight such a pandemic. His experience due to his work at the Gates Foundation together with his experience in the software industry gives him a unique set of skills that qualifies him to make valid assessments in this field. Additionally, he is well known as one of the richest people on the planet. So if anyone could grab some attention on this kind of topic from governments across the globe, it would be him.

He wasn’t as successful as he hoped for, so the Gates Foundation followed up in 2019 with the support of a simulation of such an event. The target was to highlight the impact of a pandemic event on every possible part of society, economy, politics. For those interested, search online for “Event 201”. It is quite impressive. Most things that were simulated during this event are right now developing “live” pretty much according to that playbook.

While some are already bringing up conspiracy theories, the truth is that this is just what scientists do. This is the power of science. A few smart people, computing power, and big data make it possible to foresee and to predict possible events, impacts, effects, and results. Those who see conspiracies at play here are those who don’t understand science.

So while the President of the United States of America keeps repeating that no one could have seen this coming, the truth is that many people did. They just didn’t have the audience, they didn’t get the government support, and they didn’t have access to the cash required to prepare the world for what we have to get through now. Even for Bill Gates alone, this check would have been too large.

Back to the markets

But enough politics, let’s get back to the markets. My income portfolio is currently down 40%. That hurts. My speculative portfolio is down 34%. My portfolio here in Thailand is down 35%. It’s looking not great. And all of this happened only during the last 4 weeks.

So what am I doing? I am losing lots of sleep. Not because of the losses on paper, but mainly due to the time I am spending now on analyzing where I am going to invest next.

I don’t want to rush into it, especially as I think that this recession (yes, we got into a recession by now) might hold on for a little longer. But, as soon as the virus situation starts clearing up markets will start to recover. And there are lots of companies out there that will get back on their feet.

The big question & the strategy

The big question is of course which companies will get back on their feet faster and stronger than others. And while I am analyzing and working on this almost daily, there is a simpler alternative for everyone who doesn’t have the time and knowledge to do that: Index ETFs.

It’s almost impossible to time the market. I don’t know when the lowest point will be reached. No one does. The recession could hold on longer. It could also end as quickly as it started. History has just no precedence to compare this with.

And this is what makes Index-ETFs so attractive. Instead of picking a company, I trust in the market. I intend to invest half of my available cash in just two ETFs. One ETF focusing on small & medium-sized companies in Germany. And another one focusing on major dividend-payers in Europe. I don’t buy them as a one-time investment. Instead, I set up a savings plan that will stretch over the next 8 months putting in equal amounts of cash into each ETF every first day of each month until the end of this year.

The second half of my available cash will be distributed in US and Thai stocks. I can’t say yet which companies I will choose, but to give a direction, it will be mostly in the technology sector. Software. Digital payments. Digital marketing. Telecommunications. But I am looking also at some companies that offer essential services, like food, water, energy, waste management. If anything became clear during the current crisis is that in any event, these are the companies that will sustain their operations (and cashflows) the longest.

More updates will follow soon. But no matter how the next few months will turn out, I see this as a great opportunity. I might of course also be wrong, but if I am right, then this will give my FIRE goal the kick that comes only once every few years.