The Fool’s Take
Many of us would love to have gobs of growth stocks in our portfolios, but it takes some skill and time to study the universe of stocks to determine which companies seem most promising. So consider simply investing in an exchange-traded fund (ETF) that’s focused on companies growing faster than average. (An ETF is a fund that trades like a stock, making it easy to get into and out of.)
A fine example is the Vanguard Growth ETF. The past 15 years have featured higher-than-average growth rates for the overall market, with the S&P 500 averaging 14.2% per year (as of Dec. 5). Over the same period, the Vanguard Growth ETF averaged 16.2% annually. The fund’s expense ratio (annual fee) is just 0.04%, meaning you’ll be charged only $4 per year for every $10,000 you have invested in it.
As of the end of October, the ETF owned 160 different stocks. Its top holdings were Nvidia, Apple, Microsoft, Amazon.com, Broadcom, Google parent Alphabet, Tesla, Facebook parent Meta Platforms and Eli Lilly.
Much of the fund’s assets are in these leading tech-heavy stocks, especially the top three, so be sure you’re bullish on their futures if you decide to invest. Also be aware that if and when the market pulls back, so will the ETF — though it has always bounced back after such drops.
(The Motley Fool owns shares of and recommends the Vanguard Growth ETF.)
Ask The Fool
From T.P., Youngsville, La.: Is it smart to focus only on stocks with high dividend yields and low price-to-earnings (P/E) ratios?
Not necessarily. Some dividend yields are steep simply because the stock price has fallen — perhaps due to troubles at the company. After all, a dividend yield is the result of dividing the annual dividend amount by the current stock price, so a lower share price will result in a higher yield.
Yields of, say, 2% to 4% (or even more) can be solid, especially if the payout has been growing well, but dig deeper into any company sporting an outsized dividend yield. Remember, too, that a fast-growing 2% dividend yield can be preferable to a slow-growing 3% yield.
Meanwhile, plenty of great and growing companies don’t pay dividends, so don’t exclude nonpayers, unless you’re really looking for income. (Current non-dividend-payers include Amazon.com, Netflix, Tesla and Ulta Beauty.)
Also, while a low P/E ratio suggests a better value than a high one, remember that P/E ratios vary by company and industry. And promising companies not yet turning a profit won’t have P/E figures at all (since you can’t divide by zero). Compare a company’s recent P/E with its own five-year average to see if it’s now relatively high or low. Compare it with peers in its industry, too.
You can research companies and assess many other valuation measures at sites such as Fool.com and Finance.Yahoo.com.
From F.S., Westwood, N.J.: When a stock is said to be up $1.65 or down $4.22, from what price has it risen or fallen?
The gain or loss is generally measured from where the stock traded at the end of the last trading session.
The Fool’s School
As we go about our financial lives, it’s important to build and maintain a strong credit report and a high credit score. Failing to do so could doom you to being rejected by lenders (for, say, a mortgage or a car loan) or cost you steep interest rates on loans.
Consider this: If you borrow $320,000 for a $400,000 home with a 30-year fixed-rate mortgage, your monthly payment might be around $1,920 with a 6% interest rate — but $2,130 at 7% interest. That $210 monthly difference amounts to $2,520 over a year, and nearly $76,000 in total interest paid over the 30-year period.
Your credit report is generally a multipage document featuring your birth date and Social Security number, the status of your credit accounts, your credit limits and how often you’ve made loan repayments on time (or otherwise). It can also include loans sent to collections, overdue child support payments, liens against you, foreclosures, bankruptcies and more.
Its purpose is to help lenders and others decide whether they should lend you money, take you on as a renter or even offer you cellphone service. If you allow a prospective employer to see your report, it may influence whether you’re hired, too.
Everyone in the U.S. is legally entitled to a free copy of their credit report annually from each of the main credit-reporting bureaus: Equifax, Experian and TransUnion. It’s best to review reports from all three, as they may differ, and it’s worth correcting any errors you spot.
You can order all three at AnnualCreditReport.com (or by calling 1-877-322-8228). Right now, the site even allows you to view your reports online once each week. Many credit card issuers, banks and credit unions also offer free access to your credit score — what you get when much of the information above is consolidated into a single number.
You can improve your report and/or score by paying bills on time and avoiding excessive use of your credit limit.
Learn more about credit reports and how to dispute any errors at Consumer.FTC.gov.
My Smartest Investment
From P.R., San Jose, Calif.: In the mid-1950s, when I was a teenager mowing lawns in a wealthy suburb of Chicago, my father recommended investing the money I’d saved. He suggested I invest in a company called Hertz that specialized in car rentals, as he thought that more and more Americans would want to rent cars.
I took my father’s advice. The main negative in doing so was that by the time I got to college in the late 1950s, I expected all stocks to triple their value or more every year!
Fortunately, I was also invested in the Greyhound bus company with $100 from my grandfather. (My parents made that choice, reasoning that people would always need to ride buses.) So watching Greyhound slowly grow in the 1950s did give me a reality check for my Hertz stock.
The Fool responds: You were fortunate indeed to own shares of a fast-growing company — and also to realize that skyrocketing growth is not the norm.
This is why it’s smart to spread your dollars across a bunch of companies. Hertz now includes the Dollar, Thrifty and Firefly car-rental chains. Greyhound ended up filing for bankruptcy and is now owned by the German travel company Flix.
(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)
Who Am I?
I trace my roots to 1938, when I was launched in Korea as a grocery trading and exporting business. I later expanded into textiles, banking, insurance, energy and, in 1969, into electronics.
Today, my electronics business is my flagship subsidiary, employing more than 260,000 people as of late 2024, and operating in 76 countries. Under my overall umbrella, you’ll find hotels and resorts; biotechnology and a medical center; shipbuilding; asset management; fashion; televisions, OLED displays, watches, refrigerators and dishwashers; and much more.
My name means “three stars.”
Who am I?
Forget last week’s question? Find it here.
Last week’s answer: Shell