Utility Funds – Conservative Growth With Dividend Income

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Why should you invest in no-load utility funds?

I invested a little over $100 in this fund back in July of 2020.  So far, this fund is performing very poorly.  I am about even on my investment in this fund.

After owning this fund for less than one month I decided to sell this fund and purchase a fund that has been performing far better than this utility fund.

I sold this fund and made a profit of $0.23, which is fine since I did not lose any money by owning this fund for a very short time.

Although I personally don’t like the performance of this particular utility fund, there is more than one utility fund out there.

You may have to pay a load for a good performing utility fund, but it would probably be worth it if it is performing well.

Other funds I have invested in are performing much better.  But, to be fair, I have owned this fund for less than a month as of Aug. 18, 2020.  Another fund that I invested in at the same time is doing great.

Forgive me for mentioning this again, but, back in the 80s I took and passed a Series 6 securities exam to sell mutual funds for a large insurance company.

The primary mutual fund that I sold as a registered representative was their Utility fund.  I even told my parents about this fund and they invested in it, but not through me since I was living on the west coast and they were on the east coast of the United States.

Years after I left the insurance company, my parents told me that they paid for two, or almost for two entire European vacations from the money they made from the utility mutual fund.  They took these trips to Europe probably somewhere around twenty to twenty five years ago.

This is where I have to say that this should not be considered to be investment advice.  Past performance is no guarantee of future performance.  Investors can and do lose money when investing.

Why did I bring this up?  Because I decided to invest in a Fidelity no-load utility mutual fund.  Previously I looked at the utility fund but at that time I shrugged the utility fund off.

Why, I don’t honestly know, but if I had to guess it was probably because of the performance.  Earlier this year I was looking for funds that had exceptional performance, which I found and invested in.

But, with that exceptional performance there also comes an exceptional amount of risk.  At that time, I was willing to take that risk.

Now, I have decided to take a more conservative path with my investments since I am in my late 60s.  In other words, I have shifted from a 120 mph racing boat to a motor boat that goes maybe ten mph by shifting my focus away from technology stocks and going with more conservative stocks that pay good dividends such as utilities and consumer staples funds.

Dividends are not guaranteed and companies can stop, or reduce dividend payments when times are tough.

I am now seeking less volatility that you can get when funds are invested heavily in technology stocks, which affects fund share prices and funds that invest in well established companies that pay dividends.

If I remember correctly, the volatility, beta, of this Fidelity utility fund is 0.54, which means that it is only a tiny bit more than half as volatile as the market, which is the S&P 500.

A stock, or fund with a beta of 1.0 has about the same volatility, up or down, as the market (S&P 500).  For example, if the S&P 500 goes up or down by 1% in a day, a fund or stock with a beta of 1.0 will also go up or down about 1% that day.

Coke also has a beta of 0.54 and Facebook has a beta of 1.20.  As you can see, the difference in stock volatility of coke and Facebook is quite a lot.  That is why I am switching to more conservative investments.

The dividends will be reinvested back into the utility fund so that they compound.

What type of investors are utility funds suitable for?

It is my opinion that utility funds can be suitable for people who are forty five years and older seeking less risk and who would also like to have dividends that can be reinvested back into the fund.

If you are under forty five you may also want more conservative investments and the utility fund and consumer staples fund would be a good way to go.

Actually, I think that it would be wise to split up your investment capital up and place some of your money into consumer staples no-load mutual funds as well as utility funds.  This way you can be better diversified.

For those of you who are seeking a little bit more risk with your investments you can invest a small portion of your money into riskier funds in addition to the consumer staples and utility funds.

If you are under fifty five years old, the amount of riskier investing could be anywhere from 5% to 20% of your total investment portfolio.  Also, this should only be money you are going to invest for the long term, which is a minimum of three to five years.

Please leave your comments below.

Happy investing.

Jim Juris Signature

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