Q: I’m saving for a down payment on a home. How should I invest that money?
A: It depends. If your home purchase is many years away, your money is likely to grow fastest in the stock market, perhaps via a low-fee, broad-market index fund (such as one tracking the S&P 500) that delivers roughly the market’s return. The stock market can be volatile over the short run, though, so if you expect to buy your home in, say, five or fewer years (or 10, to be very conservative), avoid stocks.
Keep short-term dollars invested in safer places, such as CDs or money-market accounts or bonds, to protect your principal. Learn about the best savings rates, credit cards, mortgages and more at theascent.com
Q: What does it mean if a stock market halts trading in a particular stock?
Most Read Business Stories
- We freaked out over Amazon's HQ2 search. But it turned out to be for all the wrong reasons | Danny Westneat
- U.S. pilots flying 737 MAX weren't told about new automatic systems change linked to Lion Air crash
- FAA evaluates a potential design flaw on Boeing's 737 MAX after Lion Air crash
- Starbucks laying off 350 people, mostly at Seattle headquarters
- Will Amazon's HQ2 sink Seattle's housing market?
A: A trading halt can be imposed when there’s some big news coming out about the company, such as a merger, a product recall or the dismissal of the CEO. It often lasts about an hour or less and is meant to give investors a little time to hear and digest the news. Halts also occur if there’s a big imbalance between buy and sell orders.
Another kind of trading halt involves the entire stock market shutting down. That’s called a “circuit breaker” or “trading curb,” and it’s triggered by extreme volatility. On the New York Stock Exchange, for example, if the S&P 500 index drops by 7 percent or 13 percent between 9:30 a.m. and 3:25 p.m., trading will be halted for 15 minutes. If there’s a 20 percent drop, trading will stop for the rest of the day.
Dear Fool: Back in 1980, I invested in a limited partnership involving domestic oil exploration. My broker recommended it, and it seemed like a good idea.
For several years, this investment was successful and paid me well in dividends. But by the mid-1980s, domestic oil production started to drop, along with oil prices. The Wall Street Journal ran an article warning that my company was in trouble. I expressed my concern to my broker, and he pooh-poohed it, suggesting I should invest more money in it. So I invested another $2,500. By 1987, the partnership was out of business, and I was left with nothing.
I learned that your broker should never be your sole source of information and that you should rely on sources that have no financial stake in your investments.
The Fool responds: Even the best brokers can make bad calls, and some investments do implode, which is why you should aim to spread your money across at least eight to 15 different investments. (Or just park much of it in one or a few low-fee broad-market index funds.) It’s also smart to think twice or thrice before adding money to a plunging investment.
The company you invested in was overly optimistic about oil prices and borrowed heavily. Thus, it was in big trouble when prices fell. Meanwhile, in 1985, the Securities and Exchange Commission charged it with defrauding investors by issuing false statements.
Microsoft has been changing
If you’re still thinking of Microsoft as mainly a producer of the Internet Explorer browser and software for your personal computer, you need to catch up. Microsoft has been reinventing itself, focusing on the cloud and the corporate market, and the results have been substantial.
The company’s recently reported fourth-quarter results exceeded analysts’ expectations, with total revenue growing by 17 percent year over year to $30 billion. That’s pretty good for a company with a market value recently topping $800 billion! Revenue from Microsoft’s commercial cloud computing businesses surged by 53 percent to nearly $7 billion, representing about a quarter of the company’s total revenue. The “more personal computing” division saw revenue grow by 17 percent, while LinkedIn, which Microsoft acquired in 2016, posted revenue growth of 37 percent.
Microsoft has been good to its shareholders, too, returning $5.3 billion to them via dividends and share buybacks during the fourth quarter. Its dividend recently yielded 1.65 percent, and it has been regularly increasing its payout by an average of about 13 percent per year.
You can find higher dividend yields elsewhere, but not all companies offer Microsoft’s stability and long-term growth potential. (Teresa Kersten, a member of The Motley Fool’s board of directors, is an employee of LinkedIn, which is owned by Microsoft.)