Every day, our mobile devices chew through more and more data, and that trend is expected to rise, as faster technologies such as 5G start to take hold. In 2015, average monthly data usage per North American smartphone was 2.4 gigabytes. That’s expected to grow to 14 gigabytes by 2020.
Many investors are therefore looking to invest in companies developing the technology that will make that much data usage possible. Technology can rapidly become commoditized, though, shrinking a company’s pricing power. So consider American Tower (NYSE: AMT) instead. It offers not the technology that will drive this change, but the infrastructure for it.
American Tower builds or buys cellular towers around the world and then leases space on them to local wireless carriers. This model gives it a stable revenue source, as telecom companies sign lease contracts that can be for 20 years or longer. As customers demand more and more data, the property value of these towers will continue to increase, since telecom companies need more installed equipment to handle the required bandwidth.
Meanwhile, American Tower is structured as a Real Estate Investment Trust (REIT), so it throws off cash to fuel a rapidly growing dividend, which recently yielded 1.8 percent. It’s unlikely that data usage will shrink in the years ahead, and that bodes well for American Tower. (The Motley Fool owns shares of and has recommended American Tower.)
Ask the Fool
Q: Who sets stock prices? - C.B., Kenosha, Wisconsin
A: Once shares have been sold to the public by a company at a set price - via an initial public offering (IPO) or a secondary offering - they trade fairly freely in the stock market. As with trading cards and other traded items, their value is simply what people will pay for them. If demand rises or falls, so do their prices. That’s why, if there’s bad news about a company, its stock will usually soon be worth less - and vice versa.
Q: Should I invest in bonds or bond mutual funds? - H.T., Warren, Ohio
A: Long-term money is likely to grow more quickly in stocks than bonds, but it’s smart for retirees and near-retirees to hold some bonds.
You buy traditional bonds for a fixed sum, and the interest rate tells you exactly how much you can expect to receive. So a $10,000 bond paying 3 percent over 10 years will pay you $300 each year - after which you’ll get your $10,000 back. If you sell the bond before it matures, you might receive more or less than the $10,000.
Bond mutual funds, often called “fixed-income” funds, can be more volatile. The monthly income they generate will typically fluctuate as prevailing interest rates change and as the fund manager buys and sells various bonds using his or her judgment. Bond funds charge annual expense fees, too, though some are quite low.
Bond funds offer instant diversification, but individual bonds permit you to plan your financial future more precisely. Riskier bonds have higher interest rates, while U.S. Treasury bonds tend to have low rates. Learn more at finra.org/investors/bonds and get additional retirement guidance at fool.com/retirement.
My Dumbest Investment
My dumbest investment involves buying - or trying to buy - class A shares of Warren Buffett’s company, Berkshire Hathaway. I thought they were trading for $213 each, so I ordered nine shares, expecting to pay a little less than $2,000. My broker called me the next day to tell me my order had been canceled because the shares actually cost $213,000 each. The bill would have been close to $2 million!
I ended up buying class B shares of Berkshire, without quite understanding the difference, or really what the company even does. Ignorance is not a good idea for an investor, especially one on a very low income like myself. I invested all my money in stocks and then read books about investing afterward. - Richard, online
The Fool responds: Warren Buffett’s company is one of the biggest in America and is made up of many sturdy businesses, such as insurance, energy and a railroad. Many believe in its long-term potential, but you should invest only after you learn a lot about the company. Buying shares of any company before you really understand it well is a recipe for trouble.
Berkshire, like some companies, has multiple classes of its stock. The B shares cost about 1/1,500th of the price of an A share, and recently traded for $147 apiece. Those A shares were around $220,000. (The Motley Fool has recommended and owns shares of Berkshire Hathaway.)
Local journalism is essential.
Give directly to The Spokesman-Review's Northwest Passages community forums series -- which helps to offset the costs of several reporter and editor positions at the newspaper -- by using the easy options below. Gifts processed in this system are not tax deductible, but are predominately used to help meet the local financial requirements needed to receive national matching-grant funds.
Subscribe to the Coronavirus newsletter
Get the day’s latest Coronavirus news delivered to your inbox by subscribing to our newsletter.