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Thursday, October 29, 2020  Spokane, Washington  Est. May 19, 1883
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Motley Fool: Banking on growth

Most of Capital One Financial’s earnings come from the interest it charges on credit card balances and loans, and it targets average working Americans.  (Associated Press)
Most of Capital One Financial’s earnings come from the interest it charges on credit card balances and loans, and it targets average working Americans. (Associated Press)

Banks are feeling the heat these days as interest rates have fallen, the direction of the economy is uncertain and unemployed people may default on loans. But at now-depressed prices, some present good investment opportunities.

Consider Capital One Financial (NYSE: COF). It was the first major bank to sign onto the cloud with Amazon Web Services, and it invested in strong infrastructure to support its customer-oriented products and services. Its credit card segment accounts for 64% of total revenue; Capital One also operates a consumer bank (including a large auto-loan division), a smaller commercial banking division and a suite of small-business services. Most of its earnings come from the interest it charges on credit card balances and loans, and it targets average working Americans.

Capital One is in a good place because of disciplined decisions it makes during normal times. “We’ve … been obsessed with resilience in our choices of businesses and segments and in all of our underwriting decisions in good times and bad,” CEO Richard Fairbank has explained.

Being diversified gives Capital One some cushion against any one segment pulling down the whole. Then again, if the economy tanks, banks will have trouble all around. Still, Capital One is a growth-oriented company with a youth and tech focus that are a big plus. Its share price was recently down about 38% year to date, and it’s likely to remain volatile until the economy picks up.

Ask the Fool

Q: Can you explain “defined contribution” and “defined benefit” retirement plans? – K.W., Ashland, Kentucky

A: Sure. Some examples will make it clear: A pension is a defined benefit plan, because the amount you’ll receive from it in retirement is generally a known, fixed number. A 401(k) or 403(b) plan, on the other hand, is a defined contribution plan, because you know how much you (and perhaps your employer) put into it, while the amount you’ll eventually end up receiving is not so certain.

Employers bear more responsibility with defined benefit plans, as they need to accumulate funds sufficient to meet their future obligations. Over the past few decades, many companies have phased out pensions and phased in defined contribution plans. Workers now bear most of the risk, and they need to be sure to contribute enough to their retirement accounts – and invest that money effectively – so they can support themselves in retirement.

For practical guidance about 401(k) plans and other retirement issues, visit – and check out our “Rule Your Retirement” service at

Q: Is buying renters insurance smart? – P.R., Las Cruces, New Mexico

A: Yes! It can protect you against theft or damage to your belongings and offer some personal liability protection. It’s generally affordable, too, often costing just a few hundred dollars per year.

Don’t assume your landlord will cover you, because his or her insurance will probably just protect the building itself and not your property in it.

You’ll need to specify how much coverage you want when you buy a policy. Some policies cover only the depreciated value of items stolen or damaged, while others cover the full replacement cost; favor the latter.

My dumbest investment

I had a gym membership early in the last decade. I moved and kept “investing” in my health for a full six months after I moved. The lesson – check your bank statements weekly, and fix any unintended purchases that day. – J.N., online

The Fool responds: Your story is a great reminder that we make all kinds of investments that aren’t in stocks, bonds, mutual funds or bank accounts. If you’re financially crunched or just want to be able to save more money, it’s worth thinking about which expenses you can do without. For many people, gym memberships can be replaced by workouts at home and in their neighborhood.

It’s important to keep an eye on your bank statements and credit card statements, paying attention to any automatic payments and renewals. Failing to do so often results in your continuing to pay for memberships or subscriptions or other things that you no longer need or use.

You’re smart to call your gym membership an investment in your health – because there are lots of important nonfinancial investments we can make. For example, investing in your health by eating nutritious meals and exercising regularly can save you a lot in health care costs, and investing in your career, perhaps by gaining new skills or certifications, can also pay off well. Invest in your relationships, too, by spending quality time with your loved ones.

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