“Be fearful when others are greedy, and greedy when others are fearful.” That’s a very famous quote from Warren Buffett, one of the most prolific investors and fund managers of all time. It’s a line that continues to be very relevant even today. In 2022, investors were met with a very significant downturn. If you were invested in growth stocks, then you would’ve been hit even harder. Many of the most popular growth stocks saw losses of 60% or more — some were as bad as 80%.
If you’re a prudent investor with a long-term view, then chances are you may not have sold off many of your shares at a loss. If you’re mostly investing in tax-advantaged accounts, then not selling becomes even more important. However, if you were a wise investor, then you may have even bought shares when most people were thinking of staying on the sidelines. Yes, it’s very counterintuitive and can be very difficult to do, but that kind of mentality can help you achieve financial independence.
Today, the stock market has reached all-time highs once again, and many investors are buying stocks by the fistful. However, we don’t know what the future holds. The stock market could crash tomorrow, and we could face another long period of uncertainty. If that happens, it’s best to be prepared. In this article, I’ll discuss two things you could do if the market turns for the worse.
Invest in dividend stocks
During market downturns, dividend stocks are outstanding options to consider. This is because dividend stocks tend to be less volatile than growth stocks during those times. One reason for the lesser volatility is because many investors will flock to dividend stocks in order to generate some sort of return, whereas growth stocks may return nothing for a long period.
Another benefit of dividend stocks is that dividend yields could skyrocket. Because stock prices are temporarily deflated, it generates a window of opportunity that investors could take if they want to optimize the dividend yields in their portfolio. For example, Bank of Nova Scotia (TSX:BNS) was offering a yield upwards of 7% earlier this year. Today, you can still take advantage of a 6.70% forward dividend yield since the stock hasn’t returned to its all-time high. Dividend investors should jump at that opportunity.
Take advantage of cheap growth stocks
If you can stomach the volatility, then investing in a company like Shopify (TSX:SHOP) could be a great decision. Despite being labelled a growth stock, Shopify is a company that is very well established. In fact, it’s one of the largest players in the global e-commerce market. In my opinion, an investment in Shopify isn’t quite as risky as investing in other high-growth companies simply because of the influence and footprint it’s established across the globe.
If you had invested in Shopify at the start of 2023, you would’ve seen a 109% increase in your position. That’s an outstanding return for such a short period of time. It also suggests to me that investors still view this as a tremendous company.
