Ask the fool
Spouse IRAs and Leveraged ETFs
Q: What is a Spouse IRA?
– CR, Alpharetta, Georgia
A: It’s a traditional or Roth IRA, but one belongs to a partner in a marriage with little or no income in a given year.
In general, IRAs can only be funded with earned income – not with dividend or pension income, for example, or an inheritance. So if you leave the regular job market, perhaps to look after children or parents, you are largely unlucky – unless you are married.
A married individual with little or no income may qualify for a “spouse IRA” if their spouse has sufficient earned income. The contribution limit for IRAs is $ 6,000 for the 2021 tax year, plus $ 1,000 for those aged 50 and over. Therefore, most married couples who apply together (there is an income cap) can park between $ 12,000 and $ 14,000 in their IRAs for 2021. IRAs are an effective way to save for retirement.
Q: What are Leveraged ETFs?
– BW, Coeur D’Alene, Idaho
A: These are equity-like investments that can ruin your wealth if you don’t understand them well.
Just to be safe, remember that the word “leverage” in the financial world refers to debt. Leveraged ETFs often track an industry or stock index and invest in those stocks with heavily borrowed dollars to increase returns. For example, a “2X” leveraged ETF will aim to generate double the returns.
However, leverage can amplify both losses and gains, and leveraged ETFs are intended to be held for very short periods of time; Perseverance for longer can lead to massive additional losses.
Fortunately, most ETFs are not leveraged, and many are solid investments to consider.
School of fools
Stupid investment principles
At The Motley Fool, we have a deadly serious mission to make the world smarter, happier, and richer – in part by promoting foolish investment principles like the top three below. (In Fooldom, being “foolish” -with-an-uppercase-F is a good thing!)
1. Buy to keep. The investment advice you often hear is “buy and hold,” but that suggests that you might just buy and forget about your holdings. Don’t do this unless you are investing in the stock market through low-fee, broad-based index funds. For individual stocks, plan to hold them for at least five years – if not decades – to give them time to create the value you expect them to be. But keep up with their advances so that you are not caught off guard when their fate changes.
2. The aim is to build a well diversified portfolio of at least 25 stocks to balance risk and return. You want to own enough different stocks to ensure that an underperformer doesn’t hurt your portfolio or investment confidence, while at the same time increasing the chances that you will have one or more strong outperformers. If your money were evenly divided between five stocks and one of them crashed sharply, it would make a significant dent in your portfolio; If 1 in 25 or 30 stocks crashes, the impact will be much less. If one of your stocks goes up 1,000% or 10,000% in the meantime, it will increase your net worth significantly.
3. Expect volatility in the stock markets – this is normal. On average, the market falls 10% once a year, 20% every four years, and 30% every 10 years for all sorts of reasons – which often have nothing to do with the underlying value of the companies you are in have invested. It is wise to avoid selling based on stock price alone, but sell when your reasons for investing in a company no longer apply.
You can learn a lot more about investing (and personal finance) on our free online site, Fool.com.
My stupidest investment
Just a short term gain
My stupidest investment was in Netflix. I bought my shares for $ 7 and then sold them for $ 15. I thought I was a genius.
– LC, online
The fool replies, well, you’ve doubled your money, which is a lot better than a lot of people with their stocks – especially those who invest for relatively short periods of time, as you probably did. But you are right to regret selling the shares, as Netflix was a phenomenal long-term investment.
Over the past 10 years, the stock has gained more than 3,600% – or nearly 44% a year on average. For the past 19 years (Netflix went public in 2002), they have gained more than 150,000%, or 47%, annually – far more than the S&P 500’s average annual profit of 11% over the same period. Netflix’s 19 years of profits are enough to turn a $ 10,000 investment into more than $ 5 million. Impressive.
Stop banging your head on the table, however – you couldn’t know how Netflix would fare 10 or 19 years ago. After the company announced in 2011 that it would spin off its DVD-by-mail business to focus on video streaming, its stock fell about 75%. It was hard to imagine how well it would recover. You may not know how your stocks will do in the long run, but try to hold onto them for a long time while keeping up with any company’s developments.
Name this company
I was founded in 1986, but today I am a combination of several fitness brands including Bowflex, Schwinn and JRNY. (Schwinn hailed from the late 1890s, made successful racing bikes in the early days, and introduced indoor exercise bikes in 1965.) Based in Vancouver, Washington, I make over $ 700 million annually and am aiming for $ 1 billion by fiscal year Dollars on 2026. I recently had a market value of nearly $ 270 million. I offer products such as elliptical trainers, exercise bikes, indoor bikes, treadmills and adjustable all-in-one free weight systems as well as the JRNY fitness app. Who am I?
Quiz answer from last week
My roots go back to 1906 when a teenager in Japan turned his family’s tailoring shop into a sock maker. After adding rubber soles to socks in the 1920s, he started making tires and founded me in 1931. I made golf balls until 1935 and rubber tubes until 1937. In 1988 I merged with Firestone. Today based in Tokyo and with a US division headquartered in Nashville, I am a global tire and rubber giant. I employ around 140,000 people and operate in more than 150 countries and territories. My brands include Primewell and Fuzion. Who am I? (Answer: Bridgestone)
The Motley Fool Take
A growing software giant
The stocks of cloud-based customer relationship management (CRM) software giant Salesforce.com (NYSE: CRM) have been trading near all-time highs lately and still appear to have plenty of room for growth.
Salesforce.com recently raised its revenue forecast for this fiscal year, giving investors an optimistic outlook for the next fiscal year and anticipating revenue growth of around 20% year over year.
The company is benefiting greatly from the increasing home office trend. As companies closed their offices due to security concerns related to the coronavirus, they increased their spending on cloud software. Even after the pandemic, spending on remote work solutions is likely to remain high.
The company also offers artificial intelligence and data integration technology and supplies tools that help companies collect and effectively analyze ever-increasing amounts of data from various sources. It is also home to the widely used business collaboration platform Slack, which it recently acquired. Salesforce has made Slack the central platform for its Salesforce 360 CRM software suite, and it is expected to help close and grow existing customers.
Salesforce has delivered strong earnings growth for shareholders and appears to be a compelling opportunity for long-term investors. (The Motley Fool owns shares of Salesforce.com and has recommended Salesforce.com.)