Most of the investments in our retirement accounts are ridiculously simple. We own a LOT of shares of Vanguard’s 2045 Target Index Fund (which Vanguard lovers know is just a dead-simple combination of their Total Stock/Bond, and Intl Stock/Bond funds that are designed to stay within “age appropriate” asset allocation ratios). We own a fair number of shares of lowish cost SP500 tracking mutual fund, and a lowish cost bond fund.
But there’s one that’s less simple. And, as a result, more expensive. It’s an energy industry mutual fund and I chose it when I set up my 401K at my current job in late 2008. The fund is not an awful one, but certainly not as cost-efficient as most of our other investments. And still, I chose to include it. Why?
My Relationship With Energy Prices
This is oddly one of the few investments I’m a tad on the emotional side about. Energy and utility prices have always been something I’ve been a little hyper-aware of.
I’d like to blame it on the fact that I was born on the tail end of an energy crisis. (See the big peak in this graph here? That’s right around when Mr PoP and I entered this world.)
Whatever the reason, this hyper-awareness was pretty well ingrained by the time I was 16-years-old and I filled up the gas tank in my mother’s car on my own for the very first time. On that day, Exxon was charging $0.99/gallon. I remember it so clearly, because never once since that day have I ever filled a gas tank on prices that low.
What’s Happened Since Then?
Here my memory translates a bit and I remember mostly the cost of a barrel of oil at different significant points in my life.
- In the fall of 2000 while in high school macro-economics class we speculated about the market forces causing oil to spike at over $30/barrel.
- Six years later when I bought a car and moved to Florida to begin my career oil was in the high $60’s per barrel. (More than double!!)
- Then in the summer of 2008, right before I started my current job, oil prices spiked over $130/barrel (and I kept hearing echoes of that macro-economics class that felt like a lifetime ago price-wise, but was actually less than 8 years prior). (And again, another ~2x increase!)
Why Am I Reminiscing About Oil And Gas Prices?
Well, mostly to explain why, in late 2008 when I was setting up my 401K that I chose to include that energy fund.
It doesn’t have a huge allocation, and the financial planner I get to see through my 401K plan calls it my “fun money”. But that’s not really an accurate description. When I set it up, it was more like my “fear money”. I felt like I had been whipsawed by energy prices in my (at that point all too brief) adult life, and allocated a small, but steady, percentage of my 401K to this energy fund.
The allocation was on the small side to start with, and has only grown increasingly small as our overall investment portfolio has expanded since then with real estate purchases, and Mr PoP’s own 401K as well! So as it stands now, it’s <3% of the value of our retirement accounts and ~1.3% of our total net worth.
Really, it’s small enough that I would be ignoring it for the most part were it not for a change in my 401K that is requiring me to liquidate the position.
Basically, I have two options:
- I could let it roll over into another energy fund, but the new fund has an even higher cost…
- Or liquidate the position and allocate it to low cost total market stock/bond funds like the rest of our portfolio
And I feel the need to address a couple of questions…
Did The Fund Provide A Good Hedge?
When I set this up, I was kindof hoping (naïvely, perhaps?) that this fund would basically be what paid for my energy costs in retirement. Gas prices go up? It wouldn’t matter to me since this fund would be what I paid for gas out of… So did it do as promised?
Not really. Here’s a graph from Google Finance comparing the energy fund I’m in with the UGA (United States Gasoline Fund – a commodity pool that aims to track the spot price of gas). The red is UGA, the blue is FANIX, the energy fund in my 401K.
Is There A Better Hedge?
Turns out there is, and Mr PoP reminded me of it when we talked about this last week. It’s called using less gas. Sometimes we get new readers who see our income statements and marvel at the ridiculous amount we spend on gas every month. But dear readers, you have no idea how much LESS gas we use than we used to.
Check out this table and try not to gag when you see where we used to be with gas spending…
|Year||$ Spent on Gas||Avg Retail Price/Gal||Approx Gal/Month|
My guess is that 2014 will come in around 60-70 gallons/month. So far, January was just 53.
Feel free to gag. I kindof do when I see those numbers from a couple of years ago. I know why they climbed so sky high – a new job for Mr PoP that had a decently long commute started in 2011 – but that’s not really an excuse since he’s still got that same commute today.
It just turns out the best hedge against rising gas prices that we can find is simply using less gas, a feat that we’d already committed ourselves to.
And the fewer gallons of gas we purchase, the less I care if the price doubles. At least that’s the hope.
So it looks like I’ll be liquidating that energy fund (sadly at a nominal fee), and rolling the funds into the low cost stock index and bond funds in my 401K plan where the rest of my money is with a renewed drive to keep our gas usage nice and low.
(Mr. PoP edit-We actually own 2 energy hedges! I bought 500$ of BP shares on a whim in late June of 2010 when the Deepwater Horizon was still spewing oil into the Gulf. BP was trading at 30; can’t remember what the PE was, but it was obvious that people were panicking by that point.)
Has anybody else tried to hedge their energy or housing costs?