Wal-Mart will bring back its proven strategy

People are increasingly shopping at Wal-Mart (NYSE: WMT) for low-priced groceries. In 2009, for the first time, sales of grocery products accounted for more than half of the retailer’s total revenue.

Yet Wal-Mart seems unable to leave well enough alone, as it tries to get higher-income consumers into its stores to buy higher-margin items.

The goal of attracting big spenders has it fiddling with its proven track record. Aside from changing its slogan from “Always Low Prices” to “Save Money. Live Better,” Wal-Mart implemented Project Impact to reduce aisle clutter and take more share from competitors. But after the company removed hundreds of items from its shelves, some consumers couldn’t find everything they wanted.

In the past year, sales hit the wall. Wal-Mart was killing its suppliers. Private-label drink maker Cott saw its exclusive agreement with Wal-Mart cut. Kraft blamed “reduced merchandising” in biscuits at “a key customer” for its own weaker performance last quarter.

Wal-Mart has seen the light … again. It’s not abandoning Project Impact, but it’s bringing back several hundred items. Perhaps it realizes that if it wants to keep the customers it won over during the recession, it does just come down to price.

That can make Wal-Mart a compelling investment.

Ask the Fool

Q: Should I use the $200,000 in my IRA to pay off my mortgage? – F.B., online

A: That’s usually not a smart move. If it’s a traditional IRA, you’ll pay taxes on the withdrawal, plus a 10 percent early withdrawal fee if you’re younger than 59 ½. Adding $200,000 to your income would likely push you into a higher tax bracket, such as from 25 percent to 33 percent. You’d lose the deductibility of your mortgage interest payments, too.

Think also of your mortgage rate, versus the growth rate you expect for your IRA holdings. If your mortgage rate is 6 percent, paying any of it off early essentially “earns” you 6 percent. If your alternative is 10 percent that you expect to earn on your IRA stocks, you’re not coming out ahead. Cashing out a retirement account means that money won’t be able to grow for you over time (tax-free, in the case of a Roth IRA).

Do the math for your particular situation, but consider keeping your IRA and trying to make occasional extra payments on your mortgage. Just a few each year can shave years off the loan and save you thousands in interest payments.

Q: I know that many index funds, like the Vanguard S&P 500 fund (VFINX), focus on the U.S. stock market. But which indexes will expose me to other parts of the world? – P. F., Cincinnati

A: There are many, such as: the Vanguard European Stock Index (VEURX), Vanguard Pacific Stock Index (VPACX), Vanguard Emerging Markets Index (VEIEX), Fidelity Spartan International Index (FSIIX), and iShares MSCI EAFE Index (EFA). Funds such as the Vanguard Total Bond Market Index (VBMFX) will give you additional diversification.

My dumbest investment

My supervisor said it would be a good idea to buy Planet Hollywood stock because it was below $2 per share. I’d never heard him talk about stocks before, and my idea of investing then was having a checking account. He seemed like a smart guy – at the time. I walked into a brokerage, opened an account and bought 2,000 shares, which I couldn’t really afford. You probably know that Planet Hollywood went bankrupt. Gee, I wish I had left the money in my checking account at least another 10 years or so, until I discovered Motley Fool – or grew a brain. – J.S., Honolulu

The Fool responds: It’s almost always a bad idea to buy a stock that’s trading for $2 per share. They often trade for pennies for a good reason. Planet Hollywood actually filed for bankruptcy twice since its incorporation in 1991. Think hard before acting on a hot stock tip without doing research. Tippers may brag about their successes, but they’ll usually keep mum about their mistakes, which may be many.