Aim High or Aim Low

Shoot for the moon. Even if you miss, you will land among the stars. Many people say one should think in that way. It might be excellent teaching in many situations. But it might be a misleading teaching when it is for setting the investment goal.

For investment, I would recommend a modified version of this saying. Shoot horizontally at the ground level. If you keep shooting, you might hit a tree with a big windfall.

Investing XLU

I had always liked the utilities ETF XLU for various reasons. The sector is relatively stable compared with other sectors in the entire stock market. And the utilities sector pays the highest dividend among all industrial sectors. Furthermore, the utilities sector can experience some growth opportunities if the battery-powered cars become realities.

After selling treasury ETF EDV in the Coverdell Education account, I was looking for a new alternative investment. Now the US government has pass laws related to the limit of the national debt. I expect the availability of the US Treasury bond will be reduced, especially if the deficit cut is becoming successful. I feel this can be a very reasonable expectation since the Tea Party movements becomes a major driving force in America politics. Many politicians including congressmen, senators, and state governors are involved with the Tea Party movements. So controlling spending by the government can become a reality in the United States. Now the total national debt approaches the size of the US GDP. It might be necessary for the government to limit its spending beyond means.

The US Treasury bond interest rates are near the historical lows. The 30-year Treasury bond yields fell below the critical 4% mark recently. Now where can the treasury yields go? It might go to a very low level like that is being experienced by the Japanese Treasury bond yield of nearly 1%. If that is the case, then the US Treasury bond price has a long way to appreciate. It might go to a very high level like that was experienced in the United States in the 1980s.

I would dismiss both cases. The balance among the three major financial forces, namely, the American dollar, the Oil, and the Gold would require the US government to carefully manage its dollar policy. Otherwise, the force of returning to the real commodity OIL or the traditional wealth symbol GOLD would wipe out all the advantages the US has accomplished over the last century. So a balanced and coordinated appreciation rate among the OIL, the GOLD, and the American Dollar has to be maintained for an extended period of time. I expect the new balanced appreciation rate will be around three to four percent.

For these reasons some shares of XLU were purchased at the price of $32.48/share today.