Ask the Fool: Secure Securities
Q. What are “government securities”? — Q.R., Las Cruces, New Mexico
A. They’re investments offered by a government, bringing in money that can be spent on anything from military operations to infrastructure renewal. Issuing these securities is often preferable to raising taxes or cutting spending somewhere.
In the United States, government securities include Treasury bills (maturing in a year or less), notes (maturing in two to 10 years) and bonds (maturing in 20 or 30 years). They’re considered extra safe investments, since they’re backed by the U.S. government, with little risk of default. They do, however, tend to offer relatively low interest rates.
You can buy or sell Treasuries via many brokerages, or at TreasuryDirect.gov.
Q. How do I set up a stock watch list? — H.P., Knoxville, Tennessee
A. Make a list of the stocks you’d like to keep an eye on — ones that seem like promising investments. You can set up a watch list, entering each stock into a virtual portfolio, at several sites; these include Finance.Yahoo.com, CNBC.com, MarketWatch.com and perhaps even your brokerage.
A watch list is especially effective if you can enter a starting (or “purchase”) price. This might be the price when you first noticed the stock, or its price on the day you added it to the portfolio. After that, any time you check the list, you’ll see how much each stock has risen or fallen from those levels.
Research and follow the companies on your watch list to get to know them well. Monitoring your list will help you notice when a company of interest falls in price significantly, which can be a great buying opportunity. Just be sure to research why a stock fell, to make sure any problems seem temporary.
Fool’s School: Short-Term Savings
In this space, we often write about long-term investments, such as those you might make in the stock market. Investing in stocks can be a powerful route to wealth, but the stock market is not a good place for short-term money.
Any money that you might need in the next five (if not 10) years is best kept out of stocks. That’s because the stock market occasionally swoons, and you don’t want to have to sell any stocks when they’re down a lot. The stock market has risen in most years, but every few years it drops — occasionally by double-digits.
Your short-term money might take several forms. For starters, you should have an easily accessible emergency fund with three to six months’ worth of all nonnegotiable living expenses. That money can keep you out of trouble if you face a major car repair, experience a costly medical setback or lose your job.
Your other short-term savings might be for expenses such as a big upcoming vacation, a down payment on a car or house, a wedding, orthodontic treatments or college expenses.
There are a bunch of places you can sock your short-term savings — such as bank savings accounts, money market accounts, certificates of deposit (CDs), short-term government and corporate bonds and funds specializing in short-term bonds. These options tend to be safer (and less volatile) than stocks, but they also tend to have lower growth rates. For example, the stock market has averaged annual gains of close to 10% over many decades. Meanwhile, five-year CDs recently had interest rates between 3.5% and 4.25%, while most high-yield savings accounts weren’t offering more than 3.25%.
It’s smart to keep your short-term and long-term savings and investments separate, and to invest them differently. That way your short-term dollars are available when you need them, and your long-term dollars are left alone to grow over years, if not decades.
My Dumbest Investment: Debt Regrets
My dumbest investment was buying things on credit. That debt kept me from having the resources to invest earlier in my life. — N.L., online
The Fool responds: Debt is a tricky thing. Some of it is almost unavoidable, such as when you want to buy a home and need a mortgage, or if you have to borrow some money for college or a car. Such debts can be OK if they charge reasonable interest rates and if you’ll be able to pay them off on time. Other debts, such as from the overenthusiastic use of credit cards, can be hazardous to your wealth.
Imagine owing, say, $40,000 on a credit card, and being charged, say, 20% on it — many people owe more than that, and many cards charge more than that, too. (Some cards charge 25% interest or more!) You’d be forking over a whopping $8,000 every year in interest alone. Clearly, it can be hard to achieve any financial goals if you’re spending $8,000 a year on debt. It’s critical to get out and stay out of high-interest-rate debt. Once you’re free of it, that interest you would have paid can go into retirement investments, or help you meet other financial goals. When tempted to buy something on credit, take a day or two to cool off — you may not be so eager to buy it later.
Foolish Trivia: Name That Company
I trace my roots back to 1975, when I was founded by two young fellows who built and sold the first computer language program for a personal computer. I went public in 1986. With a market value recently over $1.8 trillion, I’m a software behemoth. I’m also home to a popular gaming system, the Azure cloud-computing platform, LinkedIn and Skype — and I’m buying the video game company Activision Blizzard. One of my founders and his ex-wife have given away tens of billions of dollars. I plan to be carbon negative by 2030. Who am I?
Last Week’s Trivia Answer
I trace my roots back to 1891, when I was launched to distribute chemicals in New York City. I published a medical-treatment manual in 1899, which proved very popular. I moved into pharmacological research in 1933 and entered the animal health arena in 1948. I’ve been a major player in vaccines, too, helping prevent pneumonia and hepatitis B, among other diseases. Today, based in Rahway, New Jersey, I’m a pharmaceutical giant; my market value recently topped $250 billion, and my annual revenue tops $50 billion. My drugs include Singulair, Januvia and Keytruda. I merged with Schering-Plough in 2009. Who am I? (Answer: Merck)
The Motley Fool Take: Managing Customers
Salesforce (NYSE: CRM) launched a cloud-based customer relationship management (CRM) platform in 1999, becoming the first company to adopt cloud computing on a large scale. Today, with a recent market value near $160 billion, it offers productivity software for marketing, commerce, sales and customer service, as well as tools for workflow automation, data analytics and artificial intelligence (AI).
Salesforce has turned its capacity for innovation into a powerful brand. It captured 24% market share in CRM software last year — more than the next four competitors combined — marking its ninth consecutive year as the industry leader.
Its second-quarter revenue climbed 22% over year-ago levels to $7.7 billion, with management authorizing the repurchase of up to $10 billion worth of shares.
Looking ahead, investors have good reason to be bullish. Salesforce puts its total addressable market (TAM) at $290 billion in 2026, meaning it has only captured about 10% of its future TAM so far. It can grow by further penetrating large corporations, offering its platform to small and medium-sized companies, moving into new industries and expanding into overseas markets.
Meanwhile, shares recently traded at a forward-looking price-to-earnings (P/E) ratio of 28, well below Salesforce’s five-year average of 58. This growth stock is worth a closer look. (The Motley Fool owns shares of and has recommended Salesforce.)
— distributed by Andrews McMeel Syndication