The Motley Fool Take
Apple (Nasdaq: AAPL) has released its new iPhone 7 phones, and early reports are that it’s selling well. If these new phones can alleviate the concern among investors about Apple’s ability to grow iPhone-related revenue and unit shipments, that could boost its share price. Add in potential earnings growth, and there’s significant upside to the stock.
Despite the iPhone 7’s merits, some see it as just an incremental update to the prior-generation phones, rather than a fundamental game changer. According to whispers, the next iteration, perhaps an iPhone 8, is likely to bring a major overhaul in form as well as a move to a curved organic light-emitting diode (OLED) display, which should both enhance aesthetics and lead to even better image quality. This leap forward could turbocharge upgrade activity and further accelerate market share gains at the high end of the smartphone market.
Meanwhile, Apple is generating significant and growing revenue from its services, such as its iTunes Store and App Store.
Apple’s future stellar performance isn’t guaranteed, but with a couple of great years potentially ahead in terms of revenue and profit growth, it may be a good time to pick up some Apple stock. It recently traded at a price-to-earnings (P/E) ratio in the mid-teens, with a dividend that’s growing briskly, recently yielding around 2 percent. (The Motley Fool owns shares of and has recommended Apple.)
Ask the Fool
Q: Should I invest my kids in stocks or savings bonds? - P.D., Maryville, Tennessee
A: It depends. If it’s short-term money needed in a few years for college, then less volatile investments, such as savings bonds or CDs, can give you a modest return and minimize losses.
For long-term money, though - meaning time frames of five or 10 or more years - consider stocks, which have outperformed bonds and CDs over most long periods. A simple, inexpensive index fund such as one based on the S&P 500 offers instant diversification across hundreds of companies.
You might also invest at least a little money in the stock of a few companies that your children know and like, such as Nike, Starbucks, Hasbro or Apple. Then you can follow the fortunes of the companies together, as they learn about the stock market.
Learn more at savingsbonds.gov, bankrate.com and fool.com/investing/mutual-funds/mutual-funds.aspx.
Q: What are “closed-end” funds? - S.G., Naples, Florida
A: They’re like mutual funds in that they pool investor money that’s managed by a professional - but they’re different.
With regular mutual funds, if many people want to invest in them, more shares are simply created. But when closed-end funds are created, a fixed number of shares are sold to the public. After that, the shares are usually traded in a secondary market, like stocks.
The prices of regular mutual funds are calculated at the end of each trading day based on the value of the funds’ assets. But the price of closed-end funds can swing higher or lower than their net asset value, reflecting supply and demand of the shares.
Closed-end funds can be volatile, and they sometimes charge high fees. Learn more before investing in any. Start at sec.gov/answers/mfclose.htm.
My Dumbest Investment
Lots of people told me not to do it, but during the housing bubble, I got nervous - and since I didn’t have a pre-payment penalty clause in my mortgage, I decided to use part of my retirement funds to pay off the loan.
What made me nervous was that I was getting older, and my income was going to become more limited. I was advised against doing what I did because mortgage interest is deductible on my taxes, and I would have to pay taxes on the amount I withdrew, too.
Still, now I can easily live off my limited income and not get any extra gray hair worrying about the mortgage or the possibility of somehow losing my home. And I still have most of my retirement account again. As a single working mother, I have been well served by my investments. I have taken far more out of them than I ever put into them. - D.M., Pittsburg, California
The Fool responds: What you did isn’t necessarily dumb. Taking money from a retirement account can be dangerous, as it leaves you with less to support yourself in retirement. But not having a mortgage can be a good thing - and you avoided paying a lot of interest, too. Since your retirement account has recovered some and continues to grow, your financial future is not so imperiled.
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