How I’m building a simple stock portfolio I can trust next recession

Facing a bear market and possible recession in 2023, I’ve set about building a simple stock portfolio I can trust.

There’s a lot of bad stuff happening at the same time, from inflation, to a hawkish fed, to supply chain issues, to a war in Ukraine.

Maybe you’re wondering why you’d want to be in the stock market at all right now (that’s a good question!).

GIC rates are really high right now thanks to interest rate hikes, and you could ladder those for some guaranteed income (you’d still be trailing inflation by a lot, however).

If you have high interest debt, paying that off should always be your first priority.

If you’re still interested in equities, the future payoff could be significant. Generally, you want to buy when things are looking bleak and sell during euphoric periods. Things definitely bleak right now.

If you’re interested in how I’m building a simple stock portfolio I can trust as we head into a probable 2023 recession, read on.

(Another Side note: I currently own shares of every company mentioned in this article).

The rules

I’ve set ground rules for myself so I only buy stocks that I can trust and that I’m excited to have.

If you’re buying garbage penny stocks in the hopes of landing an unlikely windfall, you’re just gambling and you’re going to lose money selling them at the first sign of negative volatility.

Companies with little or no revenue and a ton of debt carry massive risk. You don’t really believe in them, and the pain of losing money is more visceral than the joy of making money.

My first rule is the most important one if you want to trust your portfolio.

Rule 1: Only buy companies you use all the time

Not every year. Not every month. For this portfolio strategy, I only buy companies I use every single month.

Some I use because I have to, some I use because they provide excellent products or value.

The reason I settled on every month is:

• It means consistent revenue for the company
• I can feel good every time I shop there because I’m kind of putting money back into my own pocket

Revenue is the lifeblood of a company, ensuring it survives in tough times and thrives in good times.

For a portfolio you can trust, you need to buy real companies that have real assets, real revenue, and pay you in real dollars.

A lot of cryptocurrency and smallcaps won’t survive a major economic downturn. At the end of the day you need to trade your own strategy, and maybe having high risk assets is part of that.

All I’m saying is: don’t gamble with money you don’t have on assets tied to air.

So what’s an example of a company I’m looking for?

Well, I shop at Costco each and every week because I have two growing boys and they’re trying to bankrupt me with the amount of food they eat. Costco gives me significant savings on my grocery bill.

Bonus point: the company has two solid revenue streams (products and subscription fees).

I book all my travel with Expedia, but I don’t own the company.

Why? Because I don’t use it every week. Sometimes I don’t use it for a year!

It’s not essential to my life and I can do without it if I’m running low on income. I’m loyal to the brand, but pleasure travel is the first thing to go in a recession.

Rule 2: It has to be tax efficient

I’m a Canadian, so I make sure every stock I own is held in either a Tax Free Savings Account (TFSA) or RRSP (Registered Retirment Savings Plan).

TFSAs are an incredible savings tool available to Canadians that allows you to put a certain amount of money each year into a sheltered account. There, it can grow tax free forever.

RRSP accounts are deferred tax accounts similar to IRA accounts.

Contributions are tax deductible, so I get more capital to invest with. The money already invested grows and can be withdrawn in a retirement when you should theoretically have lower income.

All dividends are reinvested back into the market within the tax shelters.

Rule 3: Small buys on red days

Fractional trading on platforms like Robinhood is a game-changer for small investors. In the past it would have cost you nearly $500 to buy a share of the aforementioned Costco. Now you can take a position in the company for as little as $1.

This is what I do. It allows me to dollar-cost average my stock buys across a very broad portfolio.

I currently have 189 holdings across all my portfolio strategies, but I build positions in them slowly over long periods of time. This reduces my risk significantly.

For this strategy, I’ll make 20–30 $1 buys on the companies that are down most on the day (I only buy when the S&P 500 is red too).

I have a main watchlist in Tradingview (here’s my affiliate link if you’re interested) which is free to use for simple tasks. I do pay for an upgraded membership to keep track of some extra indicators that you don’t really but that I like.

The way I look at this strategy is that I’m getting a discount on something I want to own anyway. That’s the beauty of this system. You won’t sell at the drop of a hat because you’re actually excited to own a piece of this company.

Remember that this isn’t a get rich quick scheme, and you should expect stocks to struggle for in the near term. Another benefit is you learn to love red days! You see them as opportunities for discounts.

I don’t have access to American, commission-free trading platforms like Robinhood or SoFi, so I use a Canadian equivalent called Wealthsimple for fractional trading.

If you’re just getting started now, Canadians can use my affiliate link here to possibly get as much as $3,000 to start trading with.

Rule 4: The company must pay dividends

If I’m going to tie up my money for a long time, I want to get paid while I do it. The vast majority of companies I own pay a quarterly or monthly dividend.

Just as cashflow is important to a business, it should be important to you too! Also, when you have many different companies paying you all the time, it definitely encourages you to stick with the plan.

Examples of holdings

Interested in trying my strategy? Start thinking about and writing down the names of companies you use every day. As you drive down the street, you might notice one or two. Add them! to the list. Once you own stock in a company, you’ll be excited to see it in the real world!

Here are some categories of companies I own and examples of individual stocks.

Technology

Google: For companies that I use for multiple reasons, I’ll pump up my daily buy by that amount. So for example, what do I use Google for?

1. Web search
2. Music and entertainment (YouTube)
3. Cloud tools (Docs, Gmail, Sheets, Keep, Drive, etc.)
4. Consumer products (Chromebooks, Fitbit)
5. AdSense

Google is my biggest holding because I use it for so many reasons. I use it every single day and it’s probably the biggest company in my life.

Amazon: Same idea here.

1. Consumer products
2. Prime video
3. Amazon Web Services
4. Amazon Affiliates

Many of of the websites you and I use every day run on AWS.

Consumer Products

Toyota Motors: I love my Toyota. I love how it looks. I love how it drives. I love my dealership. I love everything about the company.

Loblaws: Canada’s grocery giant, I visit one of their stores at least once a week. The pharmacy Shoppers Drug Mart is also owned by Loblaws, so I do a double buy when this one falls into my zone of interest.

Energy and Infrastructure

Enbridge: This Canadian energy giant heats my home and my water tank and fuels my kitchen applicances. I don’t love paying for it, but I have to. Owning a piece of the company defrays my energy costs, however.

Food

McDonald’s: My go-to quick breakfast stop.

Coca-Cola: My wife probably accounts for most of this company’s revenue.

Finance

SoFi: I own this company because the Canadian version is not publicly traded. I think fintech is revolutionary, like buying Apple right when they launched the iPod.

This will be a very rough ride if we dip into recession, but this is my only pure growth play in this strategy and it could get acquired at any time for a hefty premium.

Capital One: The bank that issues my Mastercard (which I also own a piece of).

Bershire Hathaway: Everyone needs insurance.

When to sell

One of the things I love about this system is that you always know when to sell: when you stop using the company’s products and services.

Example: I currently own Netflix because it’s still the first streamer that people in my house open. But they keep boosting their price to the point where I’m starting to question whether it’s good value for money. If I cancel the subscription, I’ll also cancel my investment in the company.

On the other hand, if you suddenly find yourself using a new product every day because it’s awesome, kick a few bucks over to building a position in the company.

That’s it! Good luck, investors!

The views in this article are the personal views of the author. This commentary is provided for general informational and entertainment purposes only and should not be construed as financial, investment, tax, legal or accounting advice. It does not constitute an offer or solicitation to buy or sell any securities referred to. Consult your financial advisor prior to making financial decisions.

My Canadian friends: If you’re interested in building a self-directed stock portfolio and you’re new to Wealthsimple, you can use my affiliate link to get between $5 and $3,000 to start trading!

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