Q: Are 401(k)s really so worthwhile?
A: They certainly are for most of us. With a 401(k), your employer plunks the portion of your salary that you specify into the account.
That contribution comes from pretax income. So if you earn $50,000 per year and can send $5,000 to your 401(k), you’ll have only $45,000 in taxable income to report.
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Your taxes will be lower, and you’ll have some pretax dollars invested for the future.
Best of all, many employers match a portion of your 401(k) contributions. If your company does, make the most of it — that’s free money! Learn more at bankrate.com/finance/topic/401k.aspx.
In early May, tens of thousands of Berkshire Hathaway shareholders gathered in Omaha to listen to Chairman Warren Buffett and his partner, Charlie Munger, answer their questions for five hours. Here are some paraphrased nuggets from the annual meeting:
On Berkshire Hathaway’s competitive advantage: Charlie: We’ve always tried to stay sane when other people like to go crazy.
Warren: Our competitive advantage is that we don’t have any competitors — people who sell their businesses to us don’t have other attractive options.
On being successful:
Charlie: You ought to keep plugging along, stay rational, stay energetic. The old values still work. I’ve never succeeded doing something I didn’t like doing.
Warren: You have to love something to do well at it. It’s a big advantage if you love it. It adds to your productivity.
Dear Fool: In 1969, I finally had enough cash with which to invest in some stocks. I had been studying stock reports for many years, and picked three low-priced stocks that had consistently paid dividends.
I went to a local broker and told him what I wanted. He countered by suggesting several stocks that he thought would grow much faster — a sulfur miner and a real-estate company.
Well, I bought those two, and one of my own ideas as well. Within six years, both his companies were no longer trading, but my stock was still around and paying its dividends. Now I more or less follow my own advice, and I’ve usually done well.
The Fool responds: This is a great reminder that we small investors can do well on our own by reading up on investing, carefully researching stocks and making our own decisions.
Aerospace and defense company Textron (NYSE: TXT) sank some 13 percent in a single day in April, on a disappointing earnings report featuring a “soft” market for business jets. When stocks fall they can present opportunities, and Textron is worth considering at recent levels.
The company has a wide global reach, with businesses such as Cessna, Bell Helicopter and unmanned aircraft specialist AAI. Textron builds golf carts through its E-Z-GO subsidiary, commercial lawn mowers through Jacobsen and hand tools through Greenlee.
The stock recently sported a price-to-earnings (P/E) ratio of 14, while its forward P/E is just 10, below its five-year average.
It’s worth keeping an eye on.