The Motley Fool: Every Sunday, useful tips on investing
Q: Can you explain what President Obama’s new “MyRA” accounts are?
A: “MyRA” is short for My Retirement Account, and it’s designed to help workers whose employers don’t offer retirement accounts such as 401(k)s.
As President Obama explained in his 2014 State of the Union address, “It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in.”
Contributions will be made via payroll deduction, and they can be as low as $5 (though, of course, the more you sock away, the better).
The accounts will charge no fees, and employers will not have to administer them or make matching contributions.
MyRAs will work like Roth IRAs, with ultimate withdrawals in retirement being tax-free. Accounts can move with workers from one job to another. A MyRA can be rolled into a Roth IRA at any time, but doing so is mandatory once it grows to $15,000.
Unlike many retirement accounts, MyRA accounts will be protected from market losses and backed by the U.S. government.
Funds rolled into a Roth IRA won’t have that protection, but, importantly, money in a Roth can be shifted into faster-growing investments, such as an S&P 500 index fund.
Q: What is a trust?
A: Often part of an estate plan, a trust is a legal structure that features someone (a “trustor”) giving control of property to a person or an institution (the “trustee”) for the benefit of someone else (the “beneficiary”).
The beneficiary owns the property, but the trustee controls it — usually for a limited period (such as until the beneficiary reaches a certain age).
Dear Fool: On the basis of a friend’s recommendation that he based on a marketing report, I purchased 300 shares of WorldCom in early 2001.
As the price plummeted, I purchased 400 additional shares and rode this investment all the way down to zero.
The Fool responds: You’re in good company, as many investors have made this same mistake, seeing a falling stock as more and more of a bargain as its price drops.
Remember, though, that while it’s not uncommon for a great company’s stock to temporarily fall, it’s also often the case that a stock is dropping for a good reason.
Never buy shares of a falling stock without undertaking extra due diligence.
You need to be confident that the company’s problems are short-term ones (such as the completion of a new factory running late) and not potentially long-term ones (such as a flagship product falling out of favor or deteriorating profit margins).
If you find that you don’t have confidence in the company anymore, consider selling all your shares, even at a loss, and moving the remaining dollars into a more promising holding.
Might you be interested in a stock that features average annual growth of nearly 50 percent over the past decade, and that still seems undervalued?
Thought so. Meet Priceline.com (Nasdaq: PCLN), the growth leader in the online travel industry.
You may know it as the name-your-own-price site for getting plane tickets, but it has grown into much more.
Its Priceline Group offers online airline tickets, hotel rooms, rental cars, vacation packages and cruises, serving more than 180 countries and territories.
Its Booking.com service is the global leader in online hotel reservations. In 2013 it bought Kayak.com, a top site for comparing prices of flights, hotel rooms and car rentals.
Priceline is well-diversified geographically, and emerging markets in Asia and Latin America offer enormous potential. The company is also adapting to the mobile revolution at full speed, with Booking.com sporting more than $8 billion in gross mobile bookings in 2013.
In recent years, Priceline has been outperforming its competition and gaining market share. In fiscal 2013, it took in $6.8 billion in revenue, up 29 percent over 2012, and $1.9 billion in net earnings, up 33 percent.
Despite that rapid growth, the company’s forward-looking price-to-earnings (P/E) ratio was recently only around 20, suggesting that Priceline still offers plenty of upside potential, especially in the long run.