MONEY

I Don’t Need a Financial Plan, Because the World Will End in Two Years

apocalyptic sky
Michael Turek—Getty Images

If someone believes we're in End Times, how do you convince that person to fix her finances?

As a financial planner, I’ve had a number of clients and potential clients who have felt comfortable enough to express their views about religion, politics, and society in general.

Sometimes their views have coincided with my own, and sometimes they haven’t. I don’t know who said you should never debate religion and politics, but my guess is it was someone who did.

Sometimes, however, these sensitive subjects are unavoidable, like in a conversation I had several years ago with a potential client.

We were in my office having a wonderful talk. This woman was extremely polite. She had a nice smile and a warm disposition. In fact, she could have easily won the award for World’s Best Grandma.

As our conversation moved along, I started explaining the importance of having a financial plan.

She politely allowed me to finish. Then, in a very nice voice, she told me that the reason she did not have a financial plan, nor want one, was because we were in End Times. She said that she believed in the Rapture and that it was near — within the next year or two.

I swallowed hard and thought, How do I respond to this?

At that moment it didn’t matter whether or not I shared her beliefs, because they were hers. I had to respect her and her right to believe.

I don’t remember the exact words I used after hearing her explain why she didn’t believe in financial planning, but I do know that I spoke with extreme caution. My response was along the lines of, “I completely understand what you’re saying, and I’m not disputing your belief. But my role is to help you plan for the what-ifs. In other words, what if your timing is off just a little?”

I knew if I pressed the point, I would be essentially trying to change her views about her belief in the future — a future she proceeded to describe in detail for me.

Our conversation ended cordially.

This woman did not become a client, but the experience was a lesson for me. My views about religion are unimportant when it comes to planning for my clients. What’s important is what they believe, and how their beliefs affect their outlook on the future.

As a financial professional, it’s easy to point a finger and judge others for their irrational behaviors and beliefs when it comes to finance. The reality is, however, that we are all subject to moments of irrationality.

Yes, this woman, it turns out, was clearly wrong in her forecast. After all, we’re still waiting for the Rapture.

But she’s not such an outlier. Someone who says he knows which way the stock market will go in the next year or two is not much different from a woman who says she knows the world will end in a year or two.

The difference is I’m not going to engage in a debate with a client about the timing of the world’s end. The ability to predict the markets? Now, that’s something I’m willing to argue about.

———-

Frank Paré is a certified financial planner in private practice in Oakland, California. He and his firm, PF Wealth Management Group, specialize in serving professional women in transition. Frank is currently on the board of the Financial Planning Association and was a recipient of the FPA’s 2011 Heart of Financial Planning award.

MONEY Financial Planning

Would You Trust Your Retirement to a Machine?

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Peter Yang

New websites called robo-advisers are promising smarter investment advice at a much lower cost. But are you really ready to give up the human touch?

Betterment looks like a startup right out of tech disrupter central casting. Its office, in an airy loft space, features a beer tap and Ping-Pong table. The founder, Jon Stein, favors open-necked shirts at work, not a suit and a tie. He is 35 years old.

But Betterment isn’t in Silicon Valley, and it’s not selling chat apps, cat videos, or cheap car rides. It’s in Manhattan and trying to make a splash in the very serious business of investment advice. Stein has a Wall Street résumé: He’s a former banking consultant and a chartered financial analyst. He also thinks that Wall Street charges way too much and that Internet-based companies can fundamentally change the way you invest for your retirement. “We’ve taken the friction out of the process. We’ve made [advice] accessible to everyone. That is the future,” says Stein, with the modesty you’d expect from a tech CEO.

What Stein calls “friction” other advisers call a good business. Advice can be expensive. You may pay about 5% off the top for a commission-based adviser who puts you in mutual funds. Or you might pay an annual fee—1% of assets is typical—but many advisers and planners often won’t bother with clients who don’t have a lot to invest. “It’s almost like there were two options: walking, or driving a Mercedes,” says Michael Kitces of Pinnacle Advisory Group.

Betterment and at least a dozen competitors, including Wealthfront and FutureAdvisor, think web tools and computer models can deliver advice much more cheaply. Known (sometimes pejoratively) as robo-advisers, they pick investments for you and monitor your portfolio. Many do it for 0.15% to 0.5% of assets a year and welcome tiny balances.

“Many financial advisers are going to get drummed out of the business,” says adviser Ric Edelman, a well-known industry figure. That’s a bold forecast: Robos manage $19 billion, a relative sliver. Charles Schwab alone runs $2.5 trillion.

Private venture capital investors are racing in—Betterment recently got a shot of $60 million. Using Betterment’s implied value as a yardstick, VCs think a robo may be worth about $30 for every $100 in client assets, vs. $3 per $100 for some traditional advisers. Robos “see themselves becoming the next Schwab,” says Grant Easterbrook, author of an industry report for the research firm Corporate Insight. “Based on the money they’ve gotten, the VCs believe them.”

A close look at what most robos do reveals a fairly cookie-cutter, if common-sense, investment approach—one many MONEY readers would feel comfortable doing themselves. And there are important things the services haven’t yet figured out how to do well.

Still, this could start to finally open up advice to a bigger chunk of middle-class investors, not just the wealthy. Even if robos aren’t for you now, you may soon benefit from the way they’re changing the business. Other sites, such as LearnVest and Personal Capital, are using technology to connect you to a human adviser or planner you just never happen to meet in person. Established players like Vanguard and, yes, the current Schwab are responding with their own low-cost offerings. (Schwab’s headline price: free.) The existence of the robo option puts pressure on everyone’s prices.

In other words, you don’t need to buy the Mercedes. “Now there are Kias. There are Fords,” says Kitces. “There are a lot more choices.” Here’s how those choices stack up today, and what they can do for you.

Continue reading the rest of this story here.

MONEY Tech

Why GoDaddy’s IPO Shares Look Cheap

A lot could still go wrong.

GoDaddy, the website hosting service with the provocative ads and a NASCAR sponsorship, is going public this week. Everyone loves a coming-out party, particularly for a well-known consumer brand. In general, however, investors ought to be appropriately skeptical of initial public offerings, particularly for well-hyped technology companies. In these transactions – as with any investment — price is what you pay and value is what you receive: Below, I lay out my initial thoughts on GoDaddy’s valuation.

“We have a history of operating losses and may not be able to achieve profitability in the future.”

That is one of the prominent risk factors that greets prospective investors in GoDaddy’s most recent prospectus. On a GAAP [generally accepted accounting principles] basis, GoDaddy has lost $622 million cumulatively over the past three years – hardly inconsequential for a company that generated $4.2 billion during that period. The good news, however, is that, as of last year, GoDaddy is profitable on the basis of free cash flow (which is what really matters, ultimately — not GAAP earnings).

By my calculations and based on a share price of $18 (the midpoint of the current indicative range of $17 to $19), GoDaddy’s enterprise value-to-EBITDA multiple is 7.2. Enterprise value (EV) is the sum of a company’s market capitalization and its net debt; EBITDA is a measure of cash flow, the acronym refers to earnings before interest, taxes, depreciation and amortization.

It’s cheap, surely

On that basis, GoDaddy is cheaper than all 10 companies in Bloomberg’s selection of comparable companies for which this multiple exists and roughly in line with AOL AOL INC AOL 0.46% , at 7.5. The median for the group, which includes Facebook, Google, IAC/Interactive IAC/INTERACTIVECORP IACI 0.7% , Yahoo! and Yelp is 15.1.

So, GoDaddy looks cheap, then. If only it were that straightforward. I calculated GoDaddy’s EV/EBITDA using the firm’s own adjusted EBITDA figure of $271.5 million. However, Bloomberg puts 2014 EBITDA at $90.9 million, which would lift the EV/ EBITDA to 21.8. All of a sudden, GoDaddy is more expensive than all but three of its peers and significantly more expensive than Google, for example, at 14.7. As such, using EV/ EBITDA is inconclusive until one examines the adjustments the company makes to derive its EBITDA figure. I would tend to remain skeptical and lean toward an “expensive” verdict here.

On the other hand, looking at the price-to-free cash flow multiple, GoDaddy looks like a remarkable bargain at 2.3. Alas, a whopping three-quarters of its $443.8 free cash flow to equity in 2014 was the product of an increase in long-term borrowings — not a sustainable source of free cash flow. Still, even if we substitute the operating cash flow figure of $180.6 million for free cash flow, the multiple only rises to 5.6, which looks very reasonable by comparison with AOL (9.2), IAC/Interactive (15.1) or Yahoo! (85.3). In fact, that multiple would put it at the very bottom of its peer group.

Finally, let’s resort to a blunt instrument: the price-to-sales multiple. For GoDaddy, that number is 0.73, which looks pretty darn cheap for a technology company. The S&P North American Technology Sector Index was valued at 2.92 times sales at the end of February.

May be cheap… within the indicative pricing range

I’m going to come down on the side that says, based on this preliminary assessment, GoDaddy shares look cheap. (That holds at the $18-per-share midpoint of the indicative pricing range, which could of course end up being substantially lower than the price at which they become available in the secondary market.) The Wall Street Journal reported last week that the GoDaddy IPO could see the company raise as much as $418 million and give it a market value near $3 billion.

Furthermore, the business has some attractive qualities, including its high retention rates (over 85% in aggregate and approximately 90% for customers that have been with the service for over three years). Nevertheless, I would strongly encourage investors who are considering buying the shares to read the prospectus closely, particularly the “Risk Factors” section (all 36 pages of it!). Everyone likes to imagine what could go right with an investment, but a prudent investor likes to spend more time gauging what could go wrong.

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MONEY Warren Buffett

Investing Advice from Warren Buffett’s Right-Hand Man

Berkshire Hathaway Chairman and CEO Warren Buffett, right, and his right-hand-man, Charlie Munger.
Nati Harnik—AP Berkshire Hathaway Chairman and CEO Warren Buffett, right, and his right-hand-man, Charlie Munger.

Words of wisdom from Charlie Munger, vice chairman of Berkshire Hathaway.

There aren’t many iron rules of investing, but one of them is “When Charlie Munger speaks, drop everything and listen.”

Munger, the 91-year-old billionaire vice chairman of Berkshire Hathaway, has two amazing traits: He’s brilliant, which gives him authority, and he’s rich and old, which amplifies freedom of speech to a level most of us couldn’t get away with. He says what’s on his mind without fear of offending anyone. It makes him one of the most quotable investors of all time.

Munger gave a talk this week at the Daily Journal, where he’s chairman. Investor Alex Rubalcava took notes. Here are some great things Munger said (my comments below).

“I did not succeed in life by intelligence. I succeeded because I have a long attention span.”

Time is the individual investor’s last remaining edge on professionals. If you can think about the next five years while most are focused on the next five months, you have an advantage over everyone who tries to outperform based on sheer intellect.

“The finance industry is 5% rational people and 95% shamans and faith healers.”

There are few other industries in which people are paid so much to be so consistently wrong while clients come back for more without demanding any change.

“I think that someone my age has lived through the best and easiest period in the history of the world.”

People ignore the really important news because it happens slowly, but obsess over trivial news because it happens all day long. News headlines will forever be dominated by pessimism, but by almost any metric we are living through the greatest period in world history.

“When things are damn near impossible, maybe you should stop trying.”

Related: Everyone should know the difference between patience and stubbornness. Patience is the willingness to wait a long time while remaining open to changing your mind when the facts change. Stubbornness is the willingness to wait a long time while ignoring and dismissing evidence that you’re wrong.

“Other people are trying to act smarter. I’m just trying to be non-idiotic.”

Napoleon’s definition of a military genius was “The man who can do the average thing when all those around him are going crazy.” It’s the same with investing: You don’t have to be brilliant, you just have to consistently be not stupid.

“If the incentives are wrong, the behavior will be wrong. I guarantee it.”

Anyone criticizing the behavior of “greedy Wall Street bankers” underestimates their tendency to do the same thing if offered an eight-figure salary.

“I don’t spend too much time thinking about what is almost certain never to happen.”

This likely includes: accurate economic forecasts, stable markets, consistent outperformance, reasonable politicians, and hyperinflation.

“I don’t think anything that any average person can do easily is likely to be worthwhile.”

Good investing hurts. It’s not any fun. It requires the ability to endure things most people aren’t, such as bear markets that last for years and times when you perform worse than average.

“The way to get rich is to keep $10 million in your checking account in case a good deal comes along.”

You don’t need $10 million, but cash in the bank will be the best friend you’ve ever had when stocks fall. If you’re upset that your cash is earning a dismal interest rate right now, you’re doing it wrong. Cash’s value isn’t its ability to earn interest. Providing flexibility and options is how it earns its keep.

“Nobody survives open heart surgery better than the guy who didn’t need the procedure in the first place.”

Avoid debt. Spend less than you earn. Advocate humility. Learn from your mistakes. If you can manage to not screw up too many times in investing you’ll probably do just fine over time.

For more:

MONEY Tech

Why Won’t Google Just Let Google Glass Die?

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Phillip Bond—Alamy

Despite heavy criticism and disappointing sales, the search king is sticking with its Glass initiative.

Google GOOGLE INC. GOOG -0.73% board Chairman Eric Schmidt has never been shy about pushing the envelope in the company’s penchant for innovation. Its ongoing experiments with a self-driving car and those odd-shaped balloons in Project Loon (Google’s effort to beam Internet connectivity to remote regions of the world) are just a couple examples.

However, Google didn’t stop with the cars and balloons. Word has it Google is also working on nanotechnology that would seek out and diagnose cancer and heart disease, among other ailments. That’s heady stuff, and supports the notion that Google is one of the most innovative companies on the planet.

Then there’s Glass. Google’s wearable initiative might have topped the innovation list; instead, after lackluster sales and consumer angst, Google shut down its “Explorer” program, which seemingly put an end to an unsuccessful bid to bring Jetsons-like devices to the world. But according to a recent interview, Schmidt simply won’t let Glass die. And that’s a mistake.

Knowing when to say when

Conceptualizing, let alone developing, the aforementioned innovative technologies speaks volumes about Google. But as with any company willing to take calculated risks that result in fundamental changes in the way consumers live, there are misses along the way.

Longtime Google nemesis Apple APPLE INC. AAPL -1.13% didn’t become the largest company in the world thanks to its digital assistant Newton or the wildly unpopular Pippin gaming console. And those are not even in the same innovation ballpark as nanotechnology pills, let alone Google Glass. But from a business perspective there sometimes comes a time to cut the cord — when did you last see a Newton? — and for Google Glass, that time has come and gone.

What’s the problem?

A big concern, certainly from an investor’s perspective, is there’s no mass market for Glass. While the notion of a fully connected, powerful computer wearable device — which Glass was intended to be — has potential, continuing to pour resources into something consumers aren’t interested in isn’t warranted.

Although Google hasn’t revealed the cost of developing Glass, let alone its ongoing overhead to build a new version with longer battery life, better sound, and improved display, it certainly hasn’t been cheap. For shareholders to get a return on that investment, Glass will need to become a mainstream success, and that’s not going to happen.

It could be argued there is a niche business case for Glass. It could make sense for engineers who want to view detailed 3D specs of a building while it’s being built, or for doctors and other professionals needing to access reference data and communicate on the fly. But Google has put too much money and time into Glass for it to simply meet a few, specific needs. And Schmidt has made it clear: Google intends to bring Glass to the masses.

But according to IDC, by 2018 the entire wearable device market will total a (relatively) paltry 112 million units. To put that in perspective, that same year 1.9 billion smartphones are expected to be shipped globally.

The insurmountable problem

Why is there no market for Glass? After all, Glass is actually a stand-alone, Internet-connected device, unlike the new Apple Watch that has garnered so much press. Apple Watch is like virtually every other device of its ilk: It requires a smartphone to utilize most features, which include what amount to a pager and health monitor. Meanwhile, Glass has actual computing functions, including pictures, audio, and surfing the Internet.

The problems began with poor aesthetics. The first versions of Glass were simply not something most consumers would wear. Google is rumored to be working with designers to remedy the appearance problem, but the poor looks pale in comparison to the biggest concern: privacy. Nearly two years ago, even as Glass was in its earliest stages, a laundry list of industries, including banks, sports arenas, and hospitals, banned Glass.

In some instances the concerns were safety-related, but many restaurants and other public businesses banned Glass because of how uncomfortable it makes their patrons. The notion of Glass owners surreptitiously taking pictures of complete strangers and recording their conversations leaves a lot of people — understandably — uncomfortable.

With privacy becoming more of a concern with each passing day, overcoming that challenge could prove impossible for Glass, rendering it unmarketable. Speaking of Glass, Schmidt said, “These things take time.” True, cutting-edge innovations do take time to develop, and sometimes even to catch on. But all the time in the world won’t help Glass. Sometimes, Google, you have to know when to say when.

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MONEY Ask the Expert

The Surefire Way Not to Lose Money on Your Bond Investments

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: I am leaning toward buying individual bonds and creating a bond ladder instead of a bond fund for my retirement portfolio. What are the pros and cons?—Roy Johnson, Troy, N.Y.

A: If you’re worried about interest rates rising—and many people are—buying individual bonds instead of putting some of your retirement money into a bond fund has some definite advantages, says Ryan Wibberley, CEO of CIC Wealth in Gaithersburg, Maryland. There are also some drawbacks, which we’ll get to in a moment.

First, some bond background. Rising interest rates are bad for fixed-income investments. That’s because when rates rise, the prices of bonds fall. That can cause short-term damage to bond funds. If rates spike and investors start pulling their money out of the fund, the manager may need to sell bonds at lower prices to raise cash. That would cause the net asset value of the fund to drop and erode returns.

By contrast, if you buy individual bonds and hold them to maturity, you won’t see those daily price moves. And you’ll collect your interest payments and get the bond’s face value when it comes due (assuming no credit problems), even if rates go up. So you never lose your principal. “You are guaranteed to get your money back,” says Wibberley. But with individual bonds, you will need to figure out how to reinvest that money.

One solution is to create a laddered portfolio. With this strategy, you simply buy bonds of different maturities. As each one matures, you can reinvest in a bond with a similar maturity and capture the higher yield if interest rates are rising (or accept lower yield if rates fall). All in all, it’s a sound option for retirees who seek steady income and want to protect their bond investments from higher rates.

The simplest and cheapest way to create a bond ladder is through government bonds. You can buy Treasury securities for free at TreasuryDirect.gov. You can also buy Treasuries through your bank or broker, but you’ll likely be charged fees for the transaction.

Now for the downside of bond ladders: To get the diversification you need, you should hold a mix of not only Treasuries but corporate bonds, which can be more costly to buy as a retail investor. Generally you must purchase bonds in minimum denominations, often $1,000. So to make this strategy cost-effective, you should have a portfolio of $100,000 or more.

With corporates, however, you’ll find higher yields than Treasuries offer. For safety, stick with corporate bonds that carry the highest ratings. And don’t chase yields. “Bonds with very high yields are often a sign of trouble,” says Jay Sommariva, senior portfolio manager at Fort Pitt Capital Group in Pittsburgh.

An easier option, and one that requires less cash, may be to build a bond ladder with exchange-traded bond funds. Two big ETF providers, Guggenheim and BlackRock’s iShares, now offer so-called defined-maturity or target-maturity ETFs that can be used to build a bond ladder using Treasury, corporate, high-yield or municipal bonds.

Of course, bond funds have advantages too. You don’t need a big sum to invest. And a bond fund gives you professional management and instant diversification, since it holds hundreds of different securities that mature at different dates.

Funds also provide liquidity because you can redeem shares at any time. With individual bonds, you also can sell when you want, but if you do it before maturity, you may get not get back the full value of your original investment.

There’s no one-size-fits all strategy for bond investing in retirement. A low-cost bond fund is a good option for those who prefer to avoid the hassle of managing individual bonds and who may not have a large sum to invest. “But if you want a predictable income stream and protection from rising rates, a bond ladder is a more prudent choice,” Sommariva says.

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

Read next: Here’s the Retirement Income Mistake Most Americans Are Making

MONEY Oil

Two Big Reasons You Won’t Be Spending More On Gas Anytime Soon

Shaybah oilfield complex, in the Rub' al-Khali desert, Saudi Arabia, November 14, 2007.
Ali Jarekji—REUTERS Shaybah oilfield complex, in the Rub' al-Khali desert, Saudi Arabia.

Chinese demand doesn’t seem to be improving, and Saudi Arabia is actually boosting production.

The beleaguered oil industry was hit with a double dose of bad news on Tuesday, which initially sent oil prices down. On the supply side, Saudi Arabia continues to make good on its refusal to cut its production, instead, it actually boosted production close to an all-time high. Meanwhile, weaker than expected demand in China doesn’t appear to be improving as factory data from the world’s top oil importer slipped to an 11-month low. Unless these two trends reverse course both could continue to put pressure on oil prices in the months ahead.

Gushing supplies

Saudi Arabia is making it abundantly clear that it has no intention of cutting its oil production to reduce the current glut of oil on the market. This past weekend its OPEC governor, Mohammed al-Madi, said that the market can forget about a return of triple digit oil prices for the time being. That statement was backed up by the country’s oil production data, which according to a Reuters report is now up to 10 million barrels per day. Not only is that near its all-time high, but its 350,000 barrels per day more than the country told OPEC it would produce last month. In fact, as we can see in the following chart the Kingdom’s oil output has steadily risen over the past few decades and is nearing its previous peak from the 1980s.

Saudi Arabia Crude Oil Production Chart

Typically the Saudi’s are the first to cut oil production when the market has too much supply. However, this time it’s more concerned with keeping its share of the oil market that it’s willing to flood the market with cheap oil in order to slow down production growth from places like the U.S., Canada, and Russia. This is leaving the world short of places to put the excess oil asstorage space is quickly running low due to weaker than expected demand.

China continues to slow

To make matters worse, China, which is the world’s second largest economy and top oil importer, continues to see its economic growth slow suggesting its demand for oil could be even more tepid in the months ahead. The latest data out of China shows that factory activity is now at an 11-month low. This was after the HSBC/Markit Purchasing Managers’ Index was at 49.2 for March, well below the 50.7 mark from February. Not only is that below the 50.6 that economists had expected, but it’s now below the 50-point mark that separates growth from a contraction.

That’s bad news for oil prices because as the following chart shows China’s rapidly expanding economy has been a key driver of its surging oil demand over the past decade.

China Oil Consumption Chart

With China’s economic growth slowing down it’s leading to a slowdown in its demand for oil. That leaves robust global oil supplies with nowhere to go at the moment as demand for oil in Europe has been weakened by its own economic issues while the U.S. no longer needs as much imported oil thanks to efficiency gains as well as its own robust output. This will put pressure on oil prices as increased demand for oil from China was seen as a key for an oil price rally.

Investor takeaway

So much for peak oil as Saudi Arabia has now pushed its production close to its all-time high with no signs that it plans to tap the brakes. That’s coming at the worst possible moment as the oil market is oversupplied by upwards of two million barrels per day at the moment due to weaker than expected demand in China. Worse yet, Chinese demand could start to contract as its economic machine is notably showing down. This means that investors in oil stocks are in for more volatility as the market continues to work through its supply and demand issues.

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MONEY stocks

3 Ways to Profit by Going Against the Crowd

fish jumping from crowded fishbowl to empty one
Yasu+Junko—Prop Styling by Shane Klein

Though it's scary, your best move in today's choppy market is to do what others fear.

Take a deep breath. After a whirlwind start to the year, you can be forgiven for feeling nervous about the state of the financial markets.

Yes, the Dow and the S&P 500 are back up after sharp declines earlier this year. But stocks are still on pace for their most volatile year since 2011. Sure, plunging prices at the pump are good for consumers, but they’ve taken a hammer to energy stocks. And interest rates around the world keep sinking. While falling yields boost the value of older bonds in your fixed-income funds, they sure make it hard to generate any income.

Rather than following the crowd that’s selling on today’s fears, take advantage of falling prices and do a little bargain hunting. Here are three places where that’s possible.

THE ROCKY STOCK MARKET

The worry: In 2013 and 2014, the S&P 500 experienced daily swings of 1% or more about once every six trading days. So far this year, it’s been one in three.

What the crowd is doing: Racing into low-volatility funds that focus on boring Steady Eddie companies like Procter & Gamble. As a result, the price/earnings ratio for stocks in the PowerShares S&P 500 Low Volatility ETF is 12% higher than the broad market. Yet “low vol” shares have historically traded at a 25% discount.

The smarter move: Look to an industry that’s not particularly thought of as a safe harbor in a storm: technology. Mature tech anyway. “On a relative basis, older, established tech firms look really attractive,” says BlackRock global investment strategist Heidi Richardson. Many tech giants, such as Apple APPLE INC. AAPL -1.13% , trade at P/E ratios of around 15 or less.

They also have a ton of cash, which lets them invest in research and development while still paying dividends. Moreover, the recent volatility in stocks has stemmed from fears that the Federal Reserve may start hiking rates this year. Well, tech has historically outpaced the S&P 500 in the six months following rate hikes. Lean into this group through iShares U.S. Technology ISHARES TRUST REG. SHS OF DJ US TECH.SEC.IDX IYW -0.89% . Apple, Microsoft, and Intel make up more than a third of this ETF’s holdings.

THE ENERGY CRISIS

The worry: Oil prices may not be done falling. UBS, in fact, believes that the price of a barrel of crude may not return to recent highs for another 60 months.

What the crowd is doing: Ditching blue-chip energy stocks, including giants such as Conoco-Phillips and Halliburton, which have sunk 20% to 40% lately.

The smarter move: Play the odds. The Leuthold Group found that a simple strategy of buying the market’s cheapest sector—now energy, based on median P/E ratios—and holding on for a year has trounced the broad market. “Value surfaces without even needing a catalyst,” says Doug Ramsey, Leuthold’s chief investment officer.

You can gain broad exposure through Energy Select Sector SPDR ETF ENERGY SELECT SECTOR SPDR ETF XLE -0.59% , which beat 99% of its peers over the past decade and charges fees of just 0.15% a year.

THE THREAT OF DEFLATION

The worry: Rates around the world will keep sinking, as conventional wisdom says deflation is a bigger threat than inflation.

What the crowd is doing: Pulling billions from products such as Treasury Inflation-Protected Securities that are meant to guard against rising prices—investments now yielding even less than regular bonds.

The smarter move: Embrace that lower-yielding debt, at least with a small part of your portfolio. Joe Davis, head of Vanguard’s investment strategy group, says inflation may not spike soon. But the time to buy inflation insurance is when no one is scared, and it’s cheap. Consumer prices would only have to rise more than 1.8% annually over the next decade for 10-year TIPS to outperform.

Conservative investors should look to short-term TIPS, which are less sensitive to rate hikes, says Davis. Vanguard Target Retirement 2015, for instance, allocates about 8% of its portfolio to the Vanguard Short-Term Inflation-Protected Fund VANGUARD SH-TRM INF-PRTC SEC IDX IV VTIPX 0.12% .

This won’t seem fruitful—until, that is, inflation finally rears up.

MONEY Tech

3 Companies Apple Needs to Watch Out For

Apple Store, 5th Avenue, New York
Alamy

The world's most valuable tech company is riding high, but there are a few companies it should notice in the rearview mirror.

Apple APPLE INC. AAPL -1.13% is on top of the world. The stock hit a new all-time high late last month, and now the market is looking forward to next month’s debut of the Apple Watch as the class act of Cupertino makes its first push into wearable computing.

This doesn’t mean that the coast is clear for Apple. There are a few companies that may have Apple in their crosshairs, and we asked our Motley Fool investing experts which companies they thought that Apple can’t ignore if it wants to stay on top.

Rick Munarriz: There isn’t a riverboat gambler as gutsy as Amazon.com’s AMAZON.COM INC. AMZN -0.66% Jeff Bezos in consumer tech, and that could spell trouble for Apple down the line. Bezos conceded late last year that he has spent billions on failures at the leading online retailer, but that hasn’t stopped him from placing more bold bets. He’s crazy as a fox, and margin-heavy Apple is the mother of all hen houses.

Amazon isn’t afraid to sacrifice margins for the sake of market share, explaining why you can buy a Kindle e-reader for as little as $79 and a Kindle Fire tablet for less than $100. His aim isn’t always true. Last year’s Fire Phone was a flop, and that’s comforting for Apple investors since the iPhone accounted for more than two-thirds of Apple’s sales in its latest quarter. However, with Kindle and Fire TV products butting heads with pricier Apple counterparts the battle is real. Apple rightfully commands a market premium for its products, but with Bezos willing to take big hits in the pursuit of relevance it’s a hard company to dismiss in Apple’s rearview mirror.

Dan Caplinger: Many investors see Garmin GARMIN LTD. GRMN -1.27% as already having gotten defeated by Apple and other mobile-device makers, as the company that pioneered special-purpose GPS devices for navigation has found that smartphones like Apple’s iPhone have enough navigational prowess to handle ordinary GPS applications like driving directions without a custom device. Yet as Apple prepares to move into the smartwatch market with its Apple Watch, Garmin will once again pose a competitive threat that Apple will have to overcome.

Garmin has done a good job of catering to enthusiasts with its watch offerings. Its D2 Pilot and Quatix Marine watches help airplane pilots and boat captains handle essential navigational tasks, with specific capabilities that an all-purpose watch like Apple Watch won’t be able to match. At the same time, Garmin has a good reputation for its fitness products, with the Forerunner series of high-end watches providing independent GPS navigation without the need for wireless connectivity along with a host of heart-rate and physical-performance metrics for avid runners, cyclists, and other athletes.

Garmin’s focus on specialized niches has served it well after losing much of its all-purpose GPS business. To maximize its success, Apple will have to lure some of Garmin’s loyal customers away by going beyond basic apps to take full advantage of whatever technological capabilities the Apple Watch ends up having.

Tim Beyers: Web-based computing is no longer a “someday” affair. For evidence, look at the astounding growth of salesforce.com. The poster company for cloud computing doubled earnings per share in the latest quarter as revenue soared 25.7% and its backlog of booked business grew to a whopping $9 billion.

Importantly, salesforce isn’t the only one seeing heightened interest in cloud alternatives. In its annual report on the state of the cloud, hosting provider RightScale said that 88% of the 930 IT professionals it surveyed are using the public cloud to power apps and get business done.

Why should Apple investors care? The iEmpire banks on attracting users into a closed, device-dependent ecosystem. Richer cloud environments could help break the company’s vice grip on users, and no one is working harder than Google GOOGLE INC. GOOGL -1.15% to enable this future.

Success has come slowly but surely. According to Net Applications, Chrome has consistently grown its share of the browser market since April of last year. (From 17.92% then, to 24.69% as of February.) Chromebooks are also on the rise, accounting for 25% of low-cost laptops sold in the U.S. Sales are on track to nearly triple over the next three years, Gartner reports.

For now, Chromebooks are limited in scope and functionality when compared to a full-blown Mac. What happens when that’s no longer true? What happens when I can get a high-performance Alienware laptop built to run Chrome OS apps as fast and functionally as native software on a MacBook? That could take years, of course. But it’ll be a disruptive day for Apple when it finally arrives.

MONEY Macroeconomic trends

8 Surprising Economic Trends That Will Shape the Next Century

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Douglas Mason—Getty Images

Here are the stories that will matter in the years ahead.

Forget monthly jobs reports, GDP releases, and quarterly earnings. As I see it, there are eight important economic stories worth tracking right now that could have a big impact in the coming decades.

1. The U.S. population age 30-44 declined by 3.8 million from 2002 to 2012. That cohort is now growing again. By 2023 there will be an estimated 5.8 million more Americans aged 30 to 44 than there are now, according to the Census Bureau. This is important, because this age group spends tons of money, buys lots of homes and cars, and start lots of new businesses.

2. U.S. companies have $2.1 trillion cash held abroad. Much of this is because we have an inane tax code that taxes foreign profits twice: Once in the country they’re earned in, and again when companies bring that money back to the United States. If Congress ends this rule and switches to a territorial tax system — in which countries can bring foreign-earned cash back to their home country without paying another layer of taxes, as every other developed country allows — there could be a flood of new dividends, buybacks, and investments in America. It’s huge, pent-up demand waiting to be spent.

3. U.S. infrastructure is in disastrous shape. Roads, bridges, dams, and other public infrastructure have been neglected for years. The American Society of Civil Engineers estimates that $3.6 trillion in new investment is needed by 2020 to bring the country’s infrastructure up to “good” condition. Will this happen soon? Of course not. This is Congress we’re talking about. But the good news is that this work must eventually be done. You can’t just let critical bridges and water structures fail and say, “Damn. That Brooklyn Bridge was nice while we had it.” Things will have to be repaired. Sooner rather than later would be smart, because we can borrow now for zero percent interest. But someday, it will happen. And it’ll be a huge boon to jobs and growth when it does.

4. The whole structure of modern business is changing. I’m not sure who said it first, but this quote has been floating around Twitter lately: “In 2015 Uber, the world’s largest taxi company owns no vehicles, Facebook the world’s most popular media owner creates no content, Alibaba, the most valuable retailer has no inventory, and Airbnb, the world’s largest accommodation provider owns no real estate.” Fundamental assumptions about what is needed to be a successful business have changed in just the last few years.

5. California is one of the most important agricultural states, growing 99% of the nation’s artichokes, 94% of broccoli, 95% of celery, 95% of garlic, 85% of lettuce, 95% of tomatoes, 73% of spinach, 73% of melons, 69% of carrots, 99% of almonds, 98% of pistachios, and 89% of berries (the list goes on). And the state is basically running out of water. Jay Famiglietti, senior water scientist at the NASA Jet Propulsion Laboratory, wrote last week: “Right now the state has only about one year of water supply left in its reservoirs, and our strategic backup supply, groundwater, is rapidly disappearing. California has no contingency plan for a persistent drought like this one (let alone a 20-plus-year megadrought), except, apparently, staying in emergency mode and praying for rain.” This could change rapidly in one good winter, but it could also turn into a quick tailwind on food prices. It could also be a huge boost for desalination companies.

6. New home construction will probably need to rise 40% from current levels to keep up with long-term household formation. We’re now building about 1 million new homes a year. That will likely have to rise to an average of 1.4 million per year, which combines Harvard’s Joint Center for Housing Studies’ projection of 1.2 million new households being formed each year and an annual average of 200,000 homes being lost to natural disaster or torn down. This is important because new home construction is, historically, one of the top drivers of economic growth.

7. American households have the lowest debt burden in more than three decades. And the largest portion of household debt is mortgages, most of which are fixed-rate. So when people ask, “What’s going to happen to debt burdens when interest rates rise?”, the answer is “Probably not that much.”

8. America has some of the best demographics among major economies. Between 2012 and 2050, America’s working-age population (those ages 15-64) is projected to rise by 47 million. China’s working-age population is set to shrink by 200 million, Russia’s to fall by 34 million, Japan’s by 27 million, Germany’s by 13 million, and France’s by 1 million. People worry about the impact of retiring U.S. baby boomers, but the truth is we have favorable demographics other countries can’t even dream about. This is massively overlooked and underappreciated.

There’s a lot more important stuff going on, of course. And the biggest news story of the next 20 years is almost certainly something that nobody is talking about today. But if I had to bet on eight big trends that will very likely make a difference, these would be them.

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