If you only have one stock investment in your portfolio, you’d do well to make it an index fund based on the S&P 500, the index of 500 of America’s biggest companies that together make up about 80 percent of the overall market’s value. A single investment in an S&P 500 index fund instantly has you invested in 500 companies.
Many brokerages and mutual fund companies offer S&P 500 index funds, with the Vanguard 500 Index (VFINX) among the oldest and cheapest, charging just 0.17 percent of your assets annually. See if it or a fund like it is among the choices in your employer’s 401(k) plan.
An even less expensive option is an exchange-traded fund (ETF) based on the S&P 500, such as the SPDR S&P 500 ETF (NYSE: SPY). ETFs are funds that trade like stocks, and whereas some mutual funds have minimum investments of $3,000 or more, you can buy as little as a single share of an ETF, with SPDR S&P 500 ETF shares recently trading for close to $200 per share. Better still, it charges just 0.09 percent each year.
Not enough people realize it, but the vast majority of investors underperform the market – and many professional money managers do, too. You can beat them by just earning the market’s returns, via an inexpensive S&P 500 index fund.
Ask the Fool
Q: What are the world’s biggest brands? – T.C., Ocala, Florida
A: The folks at Interbrand list the most valuable brands in the world each year. Here are 2013’s top 10, along with an estimate of each brand’s value: (1) Apple, $98 billion; (2) Google, $93 billion; (3) Coca-Cola, $79 billion; (4) IBM, $79 billion; (5) Microsoft, $60 billion; (6) General Electric, $47 billion; (7) McDonald’s, $42 billion; (8) Samsung, $40 billion; (9) Intel, $37 billion; (10) Toyota, $35 billion.
Tracking changes in brand rankings from year to year offers insight into how well various companies are performing. Google, for example, was ranked seventh in 2009 and 24th in 2006, while Kodak fell out of the top 100 in 2008.
Many brands, such as Mercedes-Benz, Gillette and Pepsi, had the same rank in 2013 as 2012 (respectively: 11th, 16th, 22nd), while some experienced big moves. EBay, Hyundai and Facebook each jumped eight or more places, while Nokia and Dell retreated, falling more than 10 places.
Q: How should I start researching a company? – W.B., Mansfield, Ohio
A: Call it, ask for the Investor Relations department, and request an “investor’s package,” which should feature the latest annual and quarterly reports, and perhaps some recent press releases, brochures and other tidbits.
Or head online. Most public companies have fairly informative websites. Click on links titled something like “For Investors,” “Investor Information” or “News.” You should find recent financial reports, several years’ worth of annual reports, press releases and more. You may also find informative presentations that executives have made. Scan the rest of the website, too.
My dumbest investment
I was new to investing and bought a bunch of stock in a certain company because it was cheap and I loved its involvement in the clean energy business. I bought it, held it, and then bought more when it looked like it might be going up. Of course, it then tanked, and I lost even more money. I have done this several times now, always losing more than I gain, and always selling just before the stock goes up again. – Laura, online
The Fool responds: Never buy a stock just because you like the industry or because it looks “cheap.” Even industries destined for great growth will have some companies in them that flame out. And a low price doesn’t mean a stock is a good buy. Remember that penny stocks can be very overpriced, while a $200 stock can be a bargain, about to double in price.
Think twice before buying more of a fallen stock, too. Stocks often fall for a reason, and you want it to be a fleeting one, not a long-term one. Be patient for long-term gains, too.