When enduring a falling market, the same buy and hold strategy for the long term remains. However, some investors may have strayed from investing in "the right stocks".
Many investors behave like ostriches during a falling market. The head, which was formerly buried in the financial pages, is progressively buried in the sand. Nobody looks forward to informing their spouse or partner about prospective losses from being in "the wrong stocks". It's always much harder to sell than to buy.
What shares to buy?
Before considering purchasing shares you must make a prompt and unemotional assessment of your current reality as follows:
Am I fully or even over invested?
Do I need cash reserves to swoop on quality stocks at discounted prices?
How secure is my current employment?
Have I reviewed my relevant insurance cover?
Am I invested in the "right stocks"? If not, should I employ conservative stop losses on the "wrong stocks"?
What are the premier blue-chip defensive stocks?
Independent of how the economy is performing, certain companies sell goods and services that are always in demand. Chief amongst these are healthcare, food and beverages, utilities and energy. If the goods and services are in demand then sustainable dividends are more likely. This also tallies with a long-dominant investing theme for investors.
If a stock is yielding 7.2% and dividends are re-invested, it only takes 10 years to double the original investment. This falls to 7.2 years if the average annual return is 10%. No capital gain is required to achieve this gain. This is called the Rule of 72. An article illustrating this for Telstra Corporation Ltd can be found here.
2 stocks I would recommend:
Woolworths Limited (ASX: WOW) – Current dividend yield is 3.73% (5.33% including franking).
It becomes very evident, when examining Woolworths' stable of businesses that they offer items that are necessary even during a market downturn. Woolworths is a retailer with primary activities in supermarkets. Other operations include over 1,300 liquor outlets including BWS, Dan Murphy's and Cellarmasters, petrol stations, hotels, including entertainment and gaming via over 300 premium hotels and home improvement via Masters Home Improvement. Woolworths has increased its dividend fourfold over the past decade and its return on investment (ROI) has been around 30% over that time.
Telstra Corporation Ltd (ASX: TLS) – Current dividend yield is 5.24% (7.4% including franking).
For both our daily personal lives and the running of businesses, telecommunication products and information services have become non-discretionary purchases that should weather a downturn in both the economy and the stockmarket. Even governments and global companies rely upon Telstra's expertise in providing managed network services, data, voice and satellite services.
Now What:
In my opinion, investing in blue-chip shares that pay high-yielding fully franked dividends is not actually being overly conservative or defensive. When one considers the magic of dividend re-investment, as long as those dividends are sustainable, a pathway is now in train toward achieving retirement wealth.
