I read this article in The Globe and Mail.

 

I have followed Derek Foster’s story and I have read all of his books. In short he is a big fan of owning dividend paying stocks much like we are.  The difference though is that his portfolio was 100% stocks and as a result when the market crash in 2008 he was not able to bear looking at his portfolio which was worth 30% less and he panicked and sold his stocks.

 

To avoid having to go through this we own fixed income which compliments our dividend paying stocks/ETFs and helps us in two ways:

 

1. The fixed income portion of our portfolio is not affected when stocks go down. In fact on page 4 of our Investment Process you can see that when money flows out of stocks it usually ends up in fixed income assets thus boosting their market value. As a result, a portfolio with fixed income fares better in stock market meltdowns and the investor is able to withstand the pullback better than the 100% equity investor who usually ends up selling out and missing the turnaround.

 

2.

The fixed income is our dry keg powder with which we are able to buy up equity while it is on sale (ie: down). This happens via rebalancing which we do once per year by taking profits from the asset that is up (fixed income) and buying assets that are down (equity).

In short, fixed allows us to withstand downturns and helps us buy up equity at low prices, and then fully participate when stocks start to go up again.