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Indexes galore

THE MOTLEY FOOL
Ask the Fool

Published: August 8, 2019

Q: What other major stock indexes are there, other than the Dow and the S&P 500? -- B.B., Midland, Michigan

A: There are a bunch of major U.S. indexes. The Dow Jones Industrial Average is the most famous, but it contains only 30 companies, including American Express, Apple, Chevron, Home Depot, McDonald's, Microsoft and Pfizer.

The Standard & Poor's 500 features 500 large U.S. companies, and its components account for about 80% of the total market value of the U.S. stock market. The Dow and the S&P 500 are often viewed as proxies for the overall U.S. economy.

Other major indexes include the Wilshire 5000 Total Market Index, which includes almost every publicly traded U.S. company; it originally sported roughly 5,000 companies, but now has about 3,500. The Russell 3000 Index includes close to 3,000 of the largest U.S. companies based on market capitalization (current share price multiplied by number of shares outstanding). The Russell 2000 is a small-cap company index, made up of about 2,000 of the smaller companies in the Russell 3000.

Looking beyond the United States, the Vanguard Total International Stock index represents almost all of the world stock market outside the U.S. There are many other indexes, broad and narrow, with some covering international regions, such as Asia or Brazil, or various sectors, such as health care or financial services.

Q: How does one get money into an online brokerage account in order to buy stocks? -- G.L., online

A: You could walk into a branch of the brokerage with cash or a check, or mail in a check, or use direct deposit or electronic transfer. Learn more about brokerages at TheAscent.com.

Fool's School

Beware -- Waiting Will Cost You

Procrastination is a common habit, but if you engage in it with your finances, you could leave a lot of money on the table and jeopardize your future financial security.

Consider this example: Let's say that you aim to retire at age 65 and you start saving and investing money for retirement at age 45. You sock away $6,000 each year and earn an average annual return of 8%, getting you to nearly $300,000 by age 65. That's a lot of money, but it won't get you that far if your retirement lasts 20 years or more.

If you put off saving and investing even longer, and start at age 55, you'll have to sock away about $19,000 each year, instead of $6,000, to get to that $300,000 in 10 years -- or you could postpone your retirement while saving and investing longer.

Now imagine that you start saving and investing just a single year earlier than age 45, at age 44. You sock away $6,000 annually for 21 years, earning an average of 8% each year. Your nest egg at age 65 will be about $30,000 bigger -- just because you included one more $6,000 installment -- that had 21 years in which to grow.

Here's a final twist: Imagine that you started saving and investing $6,000 annually at age 30, giving your money a full 35 years in which to grow for you. You'll end up with $1.1 million!

All that should make it clear how important it is to start saving and investing as early as possible. Even if you're well past 35, you can still amass a meaningful sum -- in part by being more aggressive and socking away as much as you can.

You don't have to take big chances with commodities, futures, penny stocks, cryptocurrencies or currency exchanges, either. One or more simple, low-fee broad-market index funds such as the SPDR S&P 500 ETF (SPY) can immediately diversify your long-term money across hundreds of stocks. Diligence and patience can get you far.

My Dumbest Investment

Looking Beyond

My dumbest investment was selling my Beyond Meat shares too early in fear of the plunging value at the time. -- Z.D., online

The Fool responds: There are lots of ways we can blunder when investing: We can buy too soon or too late, or sell too soon or too late, among many others.

It's common to sell a stock too soon -- perhaps because it starts retreating, or you're getting impatient for it to perform, or it's gone up to a satisfactory degree, or you simply spotted another attractive opportunity. For best results, though, if you're going to invest in individual stocks, try to find the most compelling companies with great long-term prospects -- and then buy into them when they seem undervalued relative to the value you expect them to have in the future.

Keep up with their progress so that you're not blindsided by bad news and so that you keep a solid sense of their potential. Remember that even great stocks will fall or stall from time to time.

With Beyond Meat, if you're convinced that the meat-alternative market is going to grow significantly over time and that Beyond Meat has the resources and competitive advantages that will help it prosper, then you should hang on through ups and downs. If you learn something that causes you to doubt its future, then consider selling -- ideally after doing more research.

Foolish Trivia

Name That Company

I trace my roots back to Dallas in 1927, when my founder started selling basic goods from the dock of an icehouse. (Business improved after Prohibition ended and I could sell beer.) By the 1940s, my many stores were open 16 hours a day, and I changed my name to reflect that. In 1963, I experimented with staying open 24 hours a day every day. I was the first to sell coffee in to-go cups, and to offer a self-serve soda fountain. I trademarked the term "brain freeze," too. Today my name is on more than 68,000 stores in 17 countries. Who am I?

Last Week's Trivia Answer

I trace my roots back to April Fool's Day in 1976, when I was founded in a garage by a couple of college dropouts. In 1984 I released the first mass-market computer with a mouse. One of my founders bought Pixar in 1986. Today, based in California, I employ more than 100,000 people, and my retail workers are extremely smart. I sell nearly as many watches as the entire Swiss watch industry. I dropped the word "computer" from my name in 2007. If my name were more specific, it might be Northern Spy, Sheepsnose, Pippin or Arkansas Black. Who am I? (Answer: Apple)

The Motley Fool Take

A Brighter Future for Ford

The past few years haven't been kind to investors in Ford Motor Company (NYSE: F), but uncertainty surrounding Ford has investors overlooking its significant upside potential.

Ford is in the midst of a significant product transition. It's largely exiting the midsize sedan business in North America, and this strategy is the biggest driver behind its recent sales decline. Sedan sales fell 23% in the U.S. in the last quarter, year over year, almost entirely on declining volume of models Ford has discontinued. Sales of the popular Explorer SUV also fell sharply, but this was expected, as the company shifted production to the 2020 model in the quarter and had limited inventory available at dealers.

Heading into the second half of the year, Ford is primed for better results. The new Explorer has started shipping; Ford's truck lineup -- now including the midsize Ranger -- is stronger than ever; and the new sedan lineup is more focused, with fewer sedans. Better still, the company's ratings for product quality have been rising, and it has been improving its business model. In Europe, for example, Ford has focused on restructuring for profitability and efficiency with a concentration on new electric vehicles and, perhaps more important, SUVs.

Shares of Ford's stock recently traded at a forward-looking price-to-earnings (P/E) ratio near 7, and its dividend recently yielded 6.3%. The stock is worth a closer look.

COPYRIGHT 2019 THE MOTLEY FOOL, DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION, 1130 Walnut, Kansas City, MO 64106; 816-581-7500.


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