MOTLEY FOOL
ASK THE FOOL
Equity vs. Fixed Income
Q: What are equity investments? – R.T., Franconia, New Hampshire A: In the financial world, “equity” often refers to stocks, while “fixed-income” generally refers to bonds. So a global equity mutual fund will focus on stocks from around the world, while a fixed-income analyst is one who studies bonds.
Q: I want to invest in Chinese companies, but I’m worried that it might be dangerous to do so.
– S.N., Santa Fe, New Mexico A: Chinese companies are very attractive to many investors because the Chinese population is so massive – recently around 1.44 billion people, versus about 333 million for the United States.
Investing in any foreign company can be risky, though, especially if you don't have a good grasp of local rules and regulations and the reliability of information about companies in that country, along with an understanding of political, economic and societal happenings there. China has recently tightened restrictions on many of its big tech companies, for example, and may crack down further. China's largest ride-sharing company, Didi Global, had its app removed from app stores and was not allowed to register new users. Some Chinese business executives have disappeared from public view for months.
A less risky way to invest in China is by investing in non-chinese companies that do a lot of business there. Nike, for example, got about a fifth of its fiscal 2021 brand revenue from “Greater China” (which includes Hong Kong and Taiwan).
FOOL’S SCHOOL
Annuities: The Good and Not-so-good
Annuities come in many forms, but most involve a contract with an insurance company where you pay a premium in exchange for scheduled payments beginning immediately (in the case of an immediate annuity) or in the future (via a deferred annuity).
Some kinds of annuities, such as fixed ones, can serve you very well in retirement, providing dependable income. With a fixed annuity, the rate of return and the payment amounts are specified – they're “fixed” – and guaranteed by the insurance company. Fixed annuities are the simplest annuities, and it's worth favoring them.
Other kinds – like variable or equity-indexed annuities (EIAS) – are more complicated and can be rather problematic. These annuities come in several varieties, each tying the return on your money and the ultimate payouts to a variable factor.
EIAS can have worrisome features, such as the insurance company's ability to change the rules later. An EIA will often have an appealing selling point, including collecting payments tied to the stock market's return, but not losing money when the market drops. You may not understand from the salesperson urging you to buy it, though, that your gains are capped – so that if the stock market soared by 20%, you might only get, say, a 15% gain.
FOOLISH TRIVIA
Name That Company
I trace my roots back to 1919, when my namesake – using a wooden box, a borrowed wagon, mules and a pump -launched an oil well cementing business in Duncan, Oklahoma. He pioneered a successful cementing technique and was granted dozens of patents during his life. Now more than a century old, I'm a top global energy business. My products, services and technology help oil and natural gas companies with discovery, data management, drilling, well construction, production optimization and more. I employ around 40,000 workers, representing 130-some nationalities, in more than 70 countries. Who am I?