Apocalypse Fatigue

It's been a rough month.

Our 25-year-old bird is sick. We took her to the emergency vet. She stayed overnight. We think she ate part of her cage. Ingested some metals. She's prone to seizures and these were the most violent we'd ever seen. Feathers and blood everywhere. Not good.

Took her to her regular vet for a followup. She was terrified and escaped their control long enough for even more feathers and blood. Ouch.

We've set up a hospital cage for her made out of a large plastic storage container drilled with holes and filled with towels. It's treating her well so far.

Meanwhile, we ordered a new large steel cage for her. We were fortunate to find one on sale, because they are not cheap. There are SO many out of stock right now. It was originally supposed to be delivered two days ago but there was a delay due to a train derailment. I kid you not. It arrived today and we put it together. Fortunately, that went well. She's not ready for her new and improved home, but it will be ready when she is.

In other news, it's not been a great month for the stock market. I'm still up 10% since I bought back in December, even with today's tobacco stock selloff. The decision to diversify out of utilities is still holding up well. Utilities are not reacting well at all to the rise in the 10-year yield. Had I stayed entirely in utilities, the gains would be cut in half. On a brighter note, still doing better than the 30-year Treasury bond. By. A. Wide. Margin. A 0.37% increase in yield x 30 years is roughly an 11% loss.

No more VPU specific reports. It's only 20% of my IRA now (and my IRA is a relatively small part of my net worth), so my motivation to track it closely just isn't there any longer.

Cabin fever is becoming apocalypse fatigue. Since 2020, it’s starting to feel like we're in the "what can go wrong, will go wrong" era. My hoarding tendencies are on high alert, with each new "out of stock", "shortage", "supply chain disruption", and "Covid" story adding to the personal drama. The drama is real. Any resemblances to the many fine disaster movies I often enjoy are hopefully entirely coincidental, military soldiers driving gasoline tanker trucks in Great Britain notwithstanding. *cringe*

And lastly, my posting frequency will most likely be somewhat reduced in the coming weeks. Looking to take a break. I will definitely continue to post trading updates, not that I have many trading plans. I’m comfortable with what I own. The next purchase will probably be more savings bonds at the start of the new year.

VPU Performance v.008

Months Elapsed: 8
Total Growth: 12.80%
Annualized Growth Rate: 19.81%
Distribution Yield (TTM): 2.80%

This isn't a sustainable growth rate. There is risk here, especially if inflation isn't transitory and yields don't continue to decay over the long-term. That said, I'm still comfortable holding it.

I did sell about half of my VPU position this month to buy BTI, MO, PM, and VZ. As a group, I'm up 0.66% on those. Would be doing better if I had not overweighted BTI and VZ. No plans to change course though. Feel good about the allocation.

And lastly, also bought platinum Eagles this month. On the one hand, it would cost 3.27% extra to buy them now. On the other hand, I would lose 3.67% if I sold them now. Still fighting the ~7% round trip spread. That was a tough long-term call. Could have bought a platinum fund that charges 0.5% per year instead. I therefore need to hold at least 14 years to make holding the coins the better choice. As an added bonus, holding platinum coins in one's hand beats holding a paper IOU, especially if there comes a time when many paper IOUs become worthless.

VPU Performance v.007

Months Elapsed: 7
Total Growth: 8.78%
Annualized Growth Rate: 15.51%
Distribution Yield (TTM): 2.90%

It's just climbing that wall of worry. Thankfully, not much drama nor reasons for regrets. At least not yet.

VPU Performance v.006

Months Elapsed: 6
Total Growth: 4.67%
Annualized Growth Rate: 9.56%
Distribution Yield (TTM): 3.02%

Received a distribution of $1.0140 per share this month which was reinvested at $139.29.

On the one hand, it was a bit disappointing. The distribution was down from $1.2578 in June of 2020.

On the other hand, VPU distributions were extremely volatile in 2020. Last year's abnormally high distribution (as seen here) made for a very difficult comparison this year. In theory, this September's upcoming distribution should have a much easier year over year comparison.

In any event, overall performance is more than safisfactory so far. As a long-term Treasury bond substitute, I have no complaints. At least not yet.

Firmly HODLING with cast-iron hands. They are strong hands, but they're also brittle and prone to rusting. ;)

VPU Performance v.005

Months Elapsed: 5
Total Growth: 6.65%
Annualized Growth Rate: 16.70%
Distribution Yield (TTM): 3.13%

5 months down, 195 to go. I'm thankful that it's much like watching paint dry, at least so far. Definitely not looking for any drama here.

VPU Performance v.004

Months Elapsed: 4
Total Growth: 9.20%
Annualized Growth Rate: 30.22%
Distribution Yield (TTM): 3.06%

The 30-year Treasury yield has risen from 1.67% in December to 2.30%. In hindsight, investing in utilities was a much better plan than locking in a 1.67% yield (the red target in the chart). Since I am not even remotely convinced that the long-term bull market in government bonds is over, those locking in 2.30% today might not be similarly disappointed though. That said, it would take a lot to be similarly disappointed. 30 years at 1.67% nets so much less than 30 years at 2.30%.

I suspect one short-term tailwind for utility investors to diminish as Treasury yields stabilize. Picture a recent safety-seeking retiree invested in low-yielding bonds who is looking at massive losses on those bonds, while also watching higher-yielding utilities actually going up in price. Painful. Is it any wonder that some therefore sold government bonds to buy utilities? As utility prices rise and Treasury prices fall, there is a growing temptation for me to sell utilities to buy government bonds though. The 30-year TIPS yield is currently only 0.02%, so the temptation is still very minimal.

4 months down, 196 to go.

VPU Distribution History

This chart is one reason why I am mostly comfortable holding VPU over the long-term. I say mostly comfortable because:

1. Past performance is not necessarily indicative of future returns.

2. Exponential trends eventually fail. This one will be no exception.

3. VPU's distributions held up great during the Great Recession. However, had the fund existed during the dotcom bubble collapse, it would not have done well. XLU investors buying utilities in 2000 were no doubt greatly disappointed in 2003. Both the price and the distributions fell over the period, and not by a trivial amount. See data here.

4. A return to the 1970s era, which I am not at all predicting, could make the dotcom bubble's utility pain potentially seem tame by comparison. My comfort level is therefore tied to the belief that rising inflation will be transitory and that long-term yields will begin to fall again at some point in the next few years.

My expectations are low. Not trying to hit a home run here. I'd be perfectly happy walking to first base. This investment is mostly just a bond replacement in a TINA world, at least to me. Anything more than that is just a bonus. That said, there is a definite possibility of a substantial bonus, assuming the wheels don't fall off.

VPU Performance v.003

Months Elapsed: 3
Total Growth: 5.23%
Annualized Growth Rate: 22.60%
Distribution Yield (TTM): 3.17%

VPU paid a $0.9851 dividend today (a 9.5% increase from 2020 Q1). It was automatically reinvested through a DRIP @ $139.874. VPU closed @ $140.51.

From down 4.59% last month to up 5.23% now, it's been quite a volatile start. Live by the sword, die by the sword, live, die, and so on.

3 months down, 197 to go.

VPU Performance v.002

Months Elapsed: 2
Total Growth: -4.59%
Annualized Growth Rate: -24.59%

Thanks to rapidly rising long-term interest rates, the unmitigated utilities disaster in Texas, and possible increased national regulation due to the mostly man-made Texas disaster, it’s now looking more like a crime scene photo than a picture of paint drying.

2.09% of the 4.59% loss happened just today. Perhaps it is a sign of capitulation and March will be better? In any event, I’m in it for the long haul but bracing for more pain.

2 months down, 198 to go.

VPU Performance v.001

As some of you may know, I decided to go all in on the Vanguard Utilities Index Fund (VPU) inside my IRA at the end of December 2020. This is a long-term investment. All dividends will be reinvested back into the fund. I intend to provide an update at the end of each month to show its performance since the purchase was made. This is the first update.

The red target is the 1.67% 30-year Treasury Bond yield at date of purchase. The yellow target is the 3.53% EE Savings Bond yield (if and only if held a full 20 years). The green target is a 6.0% growth rate that combines a 3.1% dividend, 2% inflation, 1% real yield growth, and 0.1% fund expenses.

Since I am using this fund as a bond replacement in a ZIRP world, my expectations are very low. Riding the yellow target would be satisfactory. Anything more is just a bonus. Anything below the red target would be unsatisfactory. Falling off the chart to the downside would clearly be an epic failure.

Months Elapsed: 1
Total Growth: 1.00%
Annualized Growth Rate: 12.67%

So far, so good. One month down, 199 to go. Apologies if this feels like watching paint dry. It is my hope that it will be similarly uneventful for the next 16+ years. One can always hope.