THE MOTLEY FOOL
ASK THE FOOL Rebalancing and REITS
Q. Can you explain portfolio rebalancing? – R.W., Laramie, Wyoming
A. It’s when you adjust the percentage of your portfolio invested in asset classes such as stocks, bonds and cash. Imagine that you start with a desired portfolio mix of 80% stocks and 20% bonds. Over a year or two, if some stocks grow briskly, you might end up 90% in stocks and 10% in bonds. If so, you might sell some stocks and buy some bonds.
You can also rebalance within an asset class. If one of a dozen stocks you own shoots up tenfold over a year or two, it will represent a big chunk of your portfolio. To rebalance, you might sell some of its shares and buy other shares.
Q. What does REIT mean? – D.L., Washington, Pennsylvania
A. It stands for “real estate investment trust.” REITS are companies that let you invest in real estate without buying any actual properties. Instead, you just invest in one or more REITS, which own (or finance) properties that produce income, often in categories such as offices, apartments, shopping centers, data centers, warehouses, medical facilities – even cellphone towers or timberlands. (Most REITS own real estate, but there are also mortgage REITS, which are very different: They finance real estate and collect income from interest instead of rent.)
REIT shareholders enjoy diversification across many properties – and also often receive significant dividend income, because REITS must pay out at least 90% of their taxable income to shareholders. REITS generally trade like regular stocks on stock exchanges; those listed that way own more than $2 trillion worth of U.S. assets.
Digging out from debt
It can be extremely stressful to carry a heavy debt burden – especially if it has a high interest rate, such as credit card debt. Such debt can keep you from reaching your financial goals, like saving for a down payment on a home or for a comfortable retirement.
While it might seem impossible to pay off all that debt, it can be done – and the sooner, the better. Here are some tips:
h Start by not adding more debt to your load. Perhaps leave your credit cards at home. Avoid getting new cards, unless you find a good balance-transfer card, such as one that lets you transfer debt at a 0% interest rate for a year or more. Learn more about balance transfer cards at Theascent.com. (Oh, and opt out of getting preapproved credit card offers in the mail by calling 888567-8688, or by visiting Optoutprescreen.com.)
h Call your credit card issuer(s) and try to negotiate a significantly lower interest rate. Many people have had success with this! You might point out that you’ve been a loyal customer, and that you can take your business elsewhere. Some cards hike your interest rate up to 25% or more if you’re late paying bills; that’s a debilitating rate, and you should aim to lower it or move on.
h Always pay at least the minimum amount due – and try to pay much more. The faster you pay off your debt to credit card companies, the less interest you’ll pay.
h Pay off your highest-interest-rate debt first, as that will save you the most in interest. (Some people recommend paying off your smallest debts first, to be rid of them, but that costs more.)
h Check out our online community of people paying down debt and supporting each other through the process: Visit the “Credit Cards and Consumer Debt” discussion board at Boards.fool.com. Some people there have paid off debts topping $100,000. It can be done!
MY DUMBEST INVESTMENT Roasted
My dumbest investment was buying into Luckin Coffee. I will never buy another Chinese stock. – H.T., online
The Fool responds: Luckin Coffee, a
Chinese startup, took its stock public in May 2019 at $17 per share; in January 2020, those shares topped $50 apiece. The company, started in 2017, had quickly established more than 2,000 locations and become the No. 2 coffee chain in China, behind Starbucks. That got the interest of many investors, who grabbed shares in expectation of further growth, sending the price up. What happened?
Well, the company was rocked by scandal and its shares were delisted, recently trading over the counter for less than $5 apiece. In April 2020, the company announced an internal audit, indicating that some of its management may have engaged in fraud, inflating the company’s revenue. That news initially sent shares plunging by 80%.
You needn’t avoid all Chinese stocks, but take some lessons from this experience. For one thing, if a company’s growth seems too good to be true, don’t trust it blindly. And do be careful with foreign stocks, because some countries require much less disclosure from publicly traded companies than the U.S. does, and their audits are often not as thorough. Some countries’ accounting standards are not as reliable, either. Foreign stocks offer diversification but tread carefully.
FOOLISH TRIVIA Name that company
I trace my roots back to 1937, when three men and two women founded me in Baltimore, aiming to invest money strategically and serve their clients with integrity. Today, I’m a major financialservices company, with $1.3 trillion recently under management. The bighorn sheep is my mascot. With more than 7,000 people – including over 700 investment professionals – serving clients and shareholders in 51 countries, I offer everything from mutual funds to college savings and retirement accounts. From August 2010 to August 2020, my stock roughly tripled. I’ve made multiple lists of best places to work and most admired companies. Who am I?
Last week’s trivia answer
I trace my roots back to 1901, when Lynde Bradley invented the compression rheostat: a way to control the speed of electric motors. He teamed up with Stanton Allen in 1903, forming me. World War I contracts and the spread of radio helped me grow in my early years. My products were used in World War II in walkie-talkies, radar and fighter planes, and they served in the early UNIVAC computer and in NASA’S space shuttles. Today, based in Milwaukee, my market value was recently near $28 billion. I’m a leader in industrial automation and digital transformation, employing about 23,000 people. Who am I? (Answer: Rockwell Automation)
THE MOTLEY FOOL TAKE Faster-growing Nasdaq stocks
Many people eager to benefit from the big stocks listed on the Nasdaq stock market invest in an exchange-traded fund (ETF) called Invesco QQQ Trust (QQQ), which owns shares of the 100 biggest companies there. But one-third of that fund’s assets were recently in just three stocks – Apple, Amazon.com and Microsoft – and its top eight stocks made up just over half. That kind of concentration isn’t ideal for investors who hope to profit from smaller and potentially faster-growing companies in the Nasdaq.
For those folks, there’s a relatively new ETF: the Nasdaq Next Gen 100 (QQQJ). It focuses on the next 100 biggest Nasdaq companies, including many popular stocks that don’t have trillion-dollar market values.
The fund’s top holdings include Atlassian, Marvell Technology Group, Okta, The Trade Desk, Roku, Old Dominion Freight Line, Liberty Broadband, Fortinet, Zscaler, Coupa Software and Garmin. As of this writing, none made up as much as 3% of the ETF’S overall value. Almost half of the fund is invested in technology.
Take a closer look at this fund to see if its holdings are companies you’d like to own, and if you expect them to grow in value over time.