Motley Fool: Some Zyng for Your Portfolio

Zynga (Nasdaq: ZNGA) looks like one of the best buys in the video game arena. The once-struggling video game publisher has reinvented itself through strategic shifts and a big acquisitions push, and it now stands as the U.S.’s leading mobile games publisher by revenue.

Zynga has a variety of bankable video game franchises and development studios to rely on, and it’s shown an impressive ability to prolong the life cycles of its hit games. Time-tested franchises including Zynga Poker and Words With Friends are still posting solid sales, and Zynga is aiming to launch new hit titles and continue to bring promising development studios into the fold through acquisitions.

Adding to the company’s growth potential, Zynga looks well-positioned to take advantage of the growth of augmented reality. Using mobile devices or smart glasses, developers can overlay visuals into real-world settings.

AR could turn into a “next big thing” shift in technology, and Zynga’s leading position in mobile games makes it a likely candidate to score wins in the emerging medium.

With the company recently valued around $11 billion, Zynga has a long runway for growth and could deliver big gains to patient investors. (The Motley Fool owns shares of and has recommended Zynga.)

Ask the Fool

Q: I’ll need a down payment for a new home in a few years. How can I grow my investments as quickly as possible for that? – B.D., Lafayette, California

A: We have bad news for you: You can’t grow your portfolio quickly and safely in just a few years.

The stock market is a terrific way to build wealth, generally outperforming other options such as bonds or real estate over the long run. In the short term, though, anything can happen, such as a stock market crash.

You don’t want the down payment you’ve accumulated to suddenly plunge in value a few months before you need it.

Money you’ll need within a few years (even five years, if you want to play it safer) should not be in stocks.

Short-term money should be kept in slower-growing but safer places, such as certificates of deposit (CDs) or money market accounts, to protect your assets. You can find good short-term interest rates at our sister site, TheAscent.com.

Q: How can a business’s earnings per share increase when its earnings don’t? – H.T., West Palm Beach, Florida

A: Here’s how: The share count has shrunk. Imagine Buzzy’s Broccoli Beer (ticker: BRRRP), with 100 million shares outstanding and $500 million in net income. Its earnings per share (EPS) are $5.

If it buys back 10 million shares (leaving 90 million) and then earns $500 million again in the next period, its EPS has suddenly risen to $5.56. ($500 million divided by 90 million equals $5.56.)

Share buybacks can serve companies and shareholders well, as they boost the value of remaining shares – but they shouldn’t be executed when the stock is overvalued. Paying too much for the shares destroys value.

Fool’s School

Millions of people have been regularly socking away money in tax-advantaged accounts such as 401(k)s and IRAs.

That’s terrific, since most of us will find income from such accounts extremely useful once we enter retirement.

Unbeknownst to many of us, though, some of those accounts feature mandatory “required minimum distributions” (RMDs) – and if we screw up taking them, it can cost us a lot. (More on that soon.)

The kinds of accounts with RMDs include Traditional, Rollover, Inherited, SEP and SIMPLE IRAs as well as 401(k), 403(b), 457(b) and profit-sharing plans. Roth IRAs, notably, do not feature RMDs.

So when do you have to take these RMDs? They used to begin at age 70½ (and still do for those who turned 70½ before 2020), but the SECURE Act of 2019 has increased that to age 72 for those who turn 70½ in 2020 or later.

More specifically, most of us need to take our first RMD by April 1 of the year following the year in which we turn 72.

For example, if you turn 72 in 2021, you’ll have until April 1, 2022, to take your first RMD. In subsequent years, you must take your annual RMD before Dec. 31.

This means you might take two RMDs in the first year – which could send you into a higher tax bracket for that year.

Here’s why it’s so critical to be RMD-savvy: If you fail to take your RMDs on time, the IRS can penalize you 50% of the amount of the RMD not taken by the deadline.

So if you needed to withdraw, say, $8,000, you might have to forfeit $4,000!Your RMD is calculated based on factors such as the balance of your retirement account as well as your (and your spouse’s) age. The IRS offers tables that can help you determine your RMD each year. Many companies that manage retirement accounts will automatically calculate RMDs for account holders; some also permit you to set up automated annual withdrawals, which can help you meet the deadlines.

My Dumbest Investment

My dumbest investment was buying shares of Inogen near their high. – D.K., online

The Fool responds: Inogen, specializing in portable oxygen concentrators, has been very volatile in recent years. It peaked in September 2018 at nearly $300 per share, but by September 2020 was near $27 per share. More recently it’s been priced around $66. Depending on the precise timing of your investment, you may have netted a loss of around 90%.

Sometimes these bad investments can be salvaged, though. For example, if you no longer have faith in the company but you still own your shares, you should sell them – and move whatever money remains into a stock you do believe in strongly. That way you might make up some or much of your loss.

Alternatively, you might do some research into the company to see how promising its future is. If you like what you see, you might hang on to the shares and end up profiting after all – at some point in the future.

Don’t just hold on and wish, though, without any research. Stubbornly hanging on to a loser, hoping to earn your money back eventually, is likely to turn out badly. With a disappointing investment, it’s also helpful to reflect on why you bought it and what red flags you might have missed so you might do better next time.

Foolish Trivia

I trace my roots back to the 1827 charter of the South Carolina Canal and Rail Road. A railway I acquired in 1916 built the world’s longest railroad bridge across Lake Pontchartrain in Louisiana in 1883. I fully dieselized my fleet by 1953. Today, headquartered near the world’s largest naval base and NATO’s North American headquarters, I feature some 19,500 route miles in 22 states and the District of Columbia. Serving every major eastern seaport, I boast “the most extensive intermodal network in the East.” I’m now the product of a 1982 merger between several railroads. Who am I?

Last Week’s Trivia Answer

I trace my roots back to 2003, when several Harvard students created a website where others could rate the attractiveness of fellow students. The next year, they launched me as an online community for the school. I grew – and now nearly 1.9 billion people use me daily, while more than 2.8 billion use me monthly. About 36% of American adults recently reported regularly getting their news from me. Based in Menlo Park, California, I employ more than 60,000 people and rake in more than $94 billion annually. My businesses include Instagram, WhatsApp, Messenger and Oculus. Who am I? (Answer: Facebook)