Energy Sector ETF - Hold or Sell?

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Topic Author
Explorer
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Energy Sector ETF - Hold or Sell?

Post by Explorer »

I am sitting on a 25% paper loss of an Energy Sector ETF in a taxable account. This is only 2% of my portfolio - so it is not causing any substantial damage to future portfolio growth.

However, I am seeking your input. 3 options:

- Hold but do not add any more for a few years until the demand for petro-products picks up
- Sell immediately, harvest the tax losses
- Add more money to average down

What would you do if in this situation?

Thanks.
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LiveSimple
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Re: Energy Sector ETF - Hold or Sell?

Post by LiveSimple »

If you invested with some goal then invest now to buy low and bring the average cost low.
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grabiner
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Re: Energy Sector ETF - Hold or Sell?

Post by grabiner »

Since this is in a taxable account, selling it for the tax loss and buying some other stock fund makes sense.

The reason this is particularly good for you is that you will come out ahead even if the replacement stock does no better than the ETF you hold (which is a reasonable assumption). With the tax deduction from the capital loss, you will have more money to invest at the same growth rate.
Wiki David Grabiner
dukeblue219
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Re: Energy Sector ETF - Hold or Sell?

Post by dukeblue219 »

Why did you buy it? Has the situation changed?

What I’m suggesting is that the ETF may not be “on sale” all that much. Global energy demand is down due to COVID and the big oil companies are behind the curve on renewables anyway.

If you want an energy ETF and like the outlook for big energy then you might double down, but it might be that the current price is the “real” price, not what you once paid. So you’d be loading up for no real reason as the sector declines.

Or just trade it for some index funds :happy
aristotelian
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Re: Energy Sector ETF - Hold or Sell?

Post by aristotelian »

On the one hand, you had a plan when you bought it. You accepted the risk and thought it would pay off. The stock went down, but that could just be part of the plan. You never want to get in the habit of buying high and selling low.

On the other hand, it appears it was a bad plan. You probably know that most here would recommend avoiding speculation and buying total market ETF's. You are probably regretting not following that advice. If you stick with the plan, you could be sticking with a bad plan that will force you to lose even more. One of the most common behavioral mistakes you hear about is sticking with stocks when they are down in hopes that they will come back.

I can't tell you whether Energy will come back or stay down for good. I can say that if you sell and commit to indexing you will be following a more rational approach that you are more likely to be able to stick to over the long haul.
Robert20
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Re: Energy Sector ETF - Hold or Sell?

Post by Robert20 »

Explorer wrote: Sun Sep 13, 2020 3:49 pm I am sitting on a 25% paper loss of an Energy Sector ETF in a taxable account. This is only 2% of my portfolio - so it is not causing any substantial damage to future portfolio growth.

However, I am seeking your input. 3 options:

- Hold but do not add any more for a few years until the demand for petro-products picks up
- Sell immediately, harvest the tax losses
- Add more money to average down

What would you do if in this situation?

Thanks.
buy more now and average down... By next year, it will be double..
Topic Author
Explorer
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Re: Energy Sector ETF - Hold or Sell?

Post by Explorer »

LiveSimple wrote: Sun Sep 13, 2020 3:51 pm If you invested with some goal then invest now to buy low and bring the average cost low.
My goal was based on high conviction that fossil fuels are not going away any time soon. I do believe this sector will recover, so adding more might make sense.
Topic Author
Explorer
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Re: Energy Sector ETF - Hold or Sell?

Post by Explorer »

grabiner wrote: Sun Sep 13, 2020 7:12 pm Since this is in a taxable account, selling it for the tax loss and buying some other stock fund makes sense.

The reason this is particularly good for you is that you will come out ahead even if the replacement stock does no better than the ETF you hold (which is a reasonable assumption). With the tax deduction from the capital loss, you will have more money to invest at the same growth rate.
Grabiner - Thanks for the response. I feel energy sector will come back.
Topic Author
Explorer
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Re: Energy Sector ETF - Hold or Sell?

Post by Explorer »

dukeblue219 wrote: Sun Sep 13, 2020 7:27 pm Why did you buy it? Has the situation changed?

What I’m suggesting is that the ETF may not be “on sale” all that much. Global energy demand is down due to COVID and the big oil companies are behind the curve on renewables anyway.

If you want an energy ETF and like the outlook for big energy then you might double down, but it might be that the current price is the “real” price, not what you once paid. So you’d be loading up for no real reason as the sector declines.

Or just trade it for some index funds :happy
thanks. I may not double down but I certainly feel energy sector will come back once the covid-trade-stocks cool off.
Topic Author
Explorer
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Re: Energy Sector ETF - Hold or Sell?

Post by Explorer »

aristotelian wrote: Sun Sep 13, 2020 9:27 pm On the one hand, you had a plan when you bought it. You accepted the risk and thought it would pay off. The stock went down, but that could just be part of the plan. You never want to get in the habit of buying high and selling low.

On the other hand, it appears it was a bad plan. You probably know that most here would recommend avoiding speculation and buying total market ETF's. You are probably regretting not following that advice. If you stick with the plan, you could be sticking with a bad plan that will force you to lose even more. One of the most common behavioral mistakes you hear about is sticking with stocks when they are down in hopes that they will come back.

I can't tell you whether Energy will come back or stay down for good. I can say that if you sell and commit to indexing you will be following a more rational approach that you are more likely to be able to stick to over the long haul.
thanks aristotelian. I am committed to low cost investments.
Topic Author
Explorer
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Re: Energy Sector ETF - Hold or Sell?

Post by Explorer »

Robert20 wrote: Sun Sep 13, 2020 9:36 pm
Explorer wrote: Sun Sep 13, 2020 3:49 pm I am sitting on a 25% paper loss of an Energy Sector ETF in a taxable account. This is only 2% of my portfolio - so it is not causing any substantial damage to future portfolio growth.

However, I am seeking your input. 3 options:

- Hold but do not add any more for a few years until the demand for petro-products picks up
- Sell immediately, harvest the tax losses
- Add more money to average down

What would you do if in this situation?

Thanks.
buy more now and average down... By next year, it will be double..
Robert20 - thanks. selling low is not attractive to anyone. this may make most sense.
RetiredCSProf
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Re: Energy Sector ETF - Hold or Sell?

Post by RetiredCSProf »

Maybe rethink your convictions? I purchased some shares of ISHARES TR GL CLEAN ENE ETF (ICLN) in my Roth account almost a year ago -- I have about a 50% gain.
Topic Author
Explorer
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Re: Energy Sector ETF - Hold or Sell?

Post by Explorer »

RetiredCSProf wrote: Mon Sep 14, 2020 9:56 am Maybe rethink your convictions? I purchased some shares of ISHARES TR GL CLEAN ENE ETF (ICLN) in my Roth account almost a year ago -- I have about a 50% gain.
Good point. Since this is not a major portion of my portfolio, I hesitate to sell at a loss thinking fossil fuels will be around for a while before clean energy products achieve economy of scale... and that there will be a rebound in oil prices.

Who knows I may be wrong.
memcpy
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Re: Energy Sector ETF - Hold or Sell?

Post by memcpy »

IMO. Electric vehicles are the future. Oil demand will go down
Don't invest more. For the current investment (since it is 2% of portfolio) wait for 1 year once this COVID situation improves. sell it and move to other good business.
informal guide
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Re: Energy Sector ETF - Hold or Sell?

Post by informal guide »

Explorer wrote: Mon Sep 14, 2020 11:47 am
RetiredCSProf wrote: Mon Sep 14, 2020 9:56 am Maybe rethink your convictions? I purchased some shares of ISHARES TR GL CLEAN ENE ETF (ICLN) in my Roth account almost a year ago -- I have about a 50% gain.
Good point. Since this is not a major portion of my portfolio, I hesitate to sell at a loss thinking fossil fuels will be around for a while before clean energy products achieve economy of scale... and that there will be a rebound in oil prices.

Who knows I may be wrong.
If you choose to sell for a tax loss and still want similar energy exposure, you might want to consider Vanguard's actively managed Energy Fund(VGENX or VGELX,) , either as a short term (31+ days until switching back to the EFT), or longer term.

I actually prefer this actively managed fund (for my energy exposure) for two reasons. The actively managed fund is less concentrated in its top 10 holdings (44.9% vs. 69.7% for the ETF). Second, the portfolio manager has the option to use (and vary) the fund's international stock exposure, in what is arguably one of the most global industry marketplaces - the energy industry. Currently the actively managed portfolio is 55% international stocks (e.g., TOTAL, BP, Royal Dutch Shell,Enbridge).

I have done several tax loss harvesting transactions between the two funds over the last several years (and would love to see Energy fund returns revert to the mean marketplace returns!)
asif408
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Re: Energy Sector ETF - Hold or Sell?

Post by asif408 »

I have a 10% holding in global energy companies (ETF FILL), and I bought more a few months ago to rebalance. Still waiting, and plan to continue waiting, it's not a huge portion but 10% is enough to make some difference. If I had a 2% stake I'd probably be increasing it right now.

If you need a TLH partner, FILL is a good choice, it's a global energy ETF with over 200 holdings, about 60% international.
carmonkie
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Re: Energy Sector ETF - Hold or Sell?

Post by carmonkie »

What was your initial % allocation to this Energy ETF? Has it always been 2%. At 2% you are not really tilting to the Energy sector. The stocks this ETF hold are covered in the Total Stock Market. You can tax loss harvest, move to your Total US or S&P 500 and be done with it.
Topic Author
Explorer
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Re: Energy Sector ETF - Hold or Sell?

Post by Explorer »

carmonkie wrote: Mon Sep 14, 2020 3:00 pm What was your initial % allocation to this Energy ETF? Has it always been 2%. At 2% you are not really tilting to the Energy sector. The stocks this ETF hold are covered in the Total Stock Market. You can tax loss harvest, move to your Total US or S&P 500 and be done with it.
Original stake 2.6% now became 2% after 25% paper loss.
Topic Author
Explorer
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Re: Energy Sector ETF - Hold or Sell?

Post by Explorer »

asif408 wrote: Mon Sep 14, 2020 3:00 pm I have a 10% holding in global energy companies (ETF FILL), and I bought more a few months ago to rebalance. Still waiting, and plan to continue waiting, it's not a huge portion but 10% is enough to make some difference. If I had a 2% stake I'd probably be increasing it right now.

If you need a TLH partner, FILL is a good choice, it's a global energy ETF with over 200 holdings, about 60% international.
Good feedback I will look into this. I am open to increasing energy stake.
Topic Author
Explorer
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Re: Energy Sector ETF - Hold or Sell?

Post by Explorer »

memcpy wrote: Mon Sep 14, 2020 2:05 pm IMO. Electric vehicles are the future. Oil demand will go down
Don't invest more. For the current investment (since it is 2% of portfolio) wait for 1 year once this COVID situation improves. sell it and move to other good business.
This is the only non-diversified widget I own, so I think this approach has a lot of merit.
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