XLU entry point:
Most LTB&H advice says it does not matter what your entry point is. Just buy when you can, and hold forever. I disagree. Entry price matters crucially for LT returns. For example: say you bought XLU 10 years ago, and held till today. So, you bought in 2011. That year, the price ranged from 20.9$ to 26.2$ If you bought at the low, your gains today are 66.2-20.9/20.9=217%. If you bought at the high, your gains are 66.2-26.2/26.2=153%. That is a difference. Stocks that deliver consistent dividends also tend to be good for cap gains. Entry point matters.
Assumptions/predictions:
1. interest rates: 0% short-term continues indefinitely. Long-term rates up (10Y treasuries to 4% next 1-2 years). High-yield bonds up more.
2. outside of recession years, XLU will continue to return about 11%/y = 8% cap gain + 3% dividend). The range of yearly cap gains is 0-20%. The range of yearly dividend yield is 3-4%.
3. XLU will be in a channel 90% of the time, defined by 4% below and 8% above the 200dma.
4. bull market continues next few years. We have a recession every 10 years or so. Next due 2030, when the U.S. President sends a 30,000$ check to every citizen during her re-election campaign, then defaults on the U.S. debt. Bitcoin and copper compete to replace the dollar as the world's reserve currency.
Disclosure: no current or prior position. I have cash which is earning 0.000003% interest (thanks to Fed manipulation of interest rates). I want this money to earn something, but without much risk.
OK, so I should have bought at the 2020 low of 42. At the time, I was in my basement, masked, desperately short of toilet paper, texting friends about funeral arrangements for their husbands. I was not thinking about my stock portfolio.
Plan: buy in increments, beginning when XLU is at its 200dma (now at $62.50). Fully in at 4% below the 200dma. Sell my highest-cost purchase when I can get out even or at a profit, and XLU is above its 200dma. Hold my lowest-cost shares, and add when the price is low. |
