MONEY Tech

Why Apple Won’t Buy Tesla

Tesla Model S
Tesla Tesla Model S

It doesn't make any sense.

According to Jason Calacanis, who bills himself as an “angel investor, entrepreneur, conference host, and podcaster,” Apple APPLE INC. AAPL -1.09% will spend $75 billion to acquire Tesla Motors TESLA MOTORS INC. TSLA 0.04% within the next year-and-a-half. While he listed a number of reasons for such a deal, his primary argument is that “once the [Tesla] Model 3 hits the road, Tesla’s market cap would make a deal with Apple a merger — not an acquisition.”

In other words, Calacanis expects such a sharp upturn in Tesla financials once it launches the more affordable Model 3 car that its market capitalization could be well north of what even Apple could afford — assuming, of course, Apple even wants to buy Tesla.

But this seems highly implausible to me.

Tesla is already quite richly valued

The first fundamental flaw with this claim is the idea that Tesla financials and market capitalization will skyrocket once the company is delivering relatively affordable electric vehicles in significant volumes. I would argue the current $25 billion market capitalization already bakes in some pretty high investor expectations.

To put this into perspective, current analyst consensus for Ford 2015 revenue — keep in mind that Ford is already in the high-volume, mainstream automobile game — sits at $143.7 billion, and its market capitalization is just shy of $64 billion as of this writing. Tesla trades at approximately 39% of Ford’s market capitalization even though the upstart carmaker is projected to generate just 4% of its 2015 revenue.

Of course, Tesla is a much higher-growth company, and it is far “sexier” than Ford, so I do not take issue with Tesla getting a richer valuation. The problem, though, is that the stock price today — at least, from what I can tell — already bakes in a lot of future success.

That means when or if Tesla succeeds in driving more volume and growing its revenue significantly, the financials might improve, but I am not convinced this could lead to the huge growth in the stock price that Calacanis predicts.

Apple would be better off buying its own stock

If Apple were to drop $75 billion on Tesla today (a three times premium to the current market capitalization), it is highly questionable as to when the company could see a return on that investment. Tesla has outright stated it does not expect to be profitable on a GAAP basis until 2020.

In this scenario, not only would Apple have to wait five years before a single cent of profit showed up on the income statement, but Tesla operations could actually drag on Apple. If the company owns Tesla, and Tesla is losing money, then that comes straight out of Apple financials.

Additionally, since Apple would need to buy Tesla with U.S.-based cash or with stock, the deal would either force the tech giant to issue shares, undoing the benefits of previous stock repurchases, or to issue a hefty amount of debt, which means paying interest on that debt. Alternatively, Apple could repatriate its foreign-held cash and get hit with a huge tax bill, but that would probably be the least likely option.

If Apple is really itching to spend $75 billion on something, it would be far better for the company to simply buy back stock. At least in this case, Apple would shrink the number of shares outstanding, immediately providing a meaningful boost to earnings per share. In my humble view, that would certainly be a quicker and easier way to juice the bottom line than to spend an exorbitant amount of money on Tesla.

MONEY stocks

Can You Really Beat the Market?

Campbell Harvey, Professor of Finance at Duke's Fuqua School of Business
Jeff Brown Don't assume everything you read in financial journals is true, says Duke University finance professor Campbell Harvey.

Turns out the smart money isn't always so.

We put the question to Duke University finance professor Campbell Harvey, 56, former editor of the Journal of Finance and president-elect of the American Finance Association. Harvey is known for taking unorthodox positions when it comes to academic research, portfolio rebalancing, and Bitcoin.

MONEY writer Taylor Tepper interviewed Campbell for the March 2015 issue of the magazine, where this edited interview originally appeared.

Q: Can you really beat the market?

A: There’s all this academic research out there that attempts to explain why stocks do well or poorly by focusing on investment factors, such as momentum or low price/earnings ratios. In all, 316 different factors were identified in the papers I studied, including things like the amount of media attention a company gets or how much it spends on advertising. My research found that of all the published papers in finance, over half are likely false. The problem is the researchers were applying the tools of statistics as if there was only one test going on when there are multiple variables. Some factors are going to look statistically significant just by chance.

Q: Can you help us understand?

A: There’s a cartoon that explains this well. Let’s say somebody has a hypothesis that jelly beans cause acne. So researchers conduct a controlled experiment where some people get jelly beans and some don’t. It turns out that there’s no significant difference. Then somebody says, “Well, maybe we’re looking at this incorrectly. We should look at this by the color of the jelly bean. So then 20 new experiments are undertaken. Again, some people get jelly beans and others don’t. But the jelly beans are just red. A separate experiment uses just yellow beans. Then all purple. Each time there’s no effect. On the 20th try, which happens to test green jelly beans, they find there’s a difference that is statistically significant by the usual rules. And then in the newspaper the next day, there’s this headline: GREEN JELLY BEANS CAUSE ACNE.

Q: What should the standard be?

A: Usually you’re looking for 95% confidence, which means there’s a 5% chance the result was a fluke. But that’s true only if you’re conducting a single test. As soon as you go to multiple tests, it’s like the jelly bean problem. You do 20 experiments and you’re likely to get a hit by chance.

Q: To be fair, you’ve made this mistake yourself.

A: Some of the papers we analyzed are my own. This actually gives me a bit of a pass when I’m talking to my colleagues and saying, “Half of what you guys published is false.” And they kind of push back: “How could you say that?” And I say, “Well, it also holds for me, okay?”

Q: What does this mean for the average investor?

A: For individual investors the best thing to do is to just go with an index fund. Don’t believe these claims of using this or that “factor” to beat the market. Invest in the broad market, and go with the lowest possible fee.

Q: But so-called smart beta index funds claim to capitalize on these “factors.”

A: Imagine there are 316 of these “smart” beta index funds, each chasing one of the factors that I detail. It is likely that more than 50% of them are destined to disappoint.

Suppose there’s an ETF investing only in stocks beginning with the letter “H.” The managers claim historical outperformance for H stocks based on simulations going back to 1926. They claim their results are “significant.” They’re likely using the wrong statistical method to declare their strategy “true.” They might have tried 26 letters and “H” worked by chance.

“Don’t believe these claims of using this or that ‘factor’ to beat the market. Invest in the broad market, and go with the lowest possible fee.”The insight is the same for 316 factors. If you try enough strategies, some will work by luck. In many cases it’s not about being “smart.”

Q: Speaking of smart, rebalancing has been recommended as a prudent approach. You’ve done research on this topic, right?

A: Rebalancing is like mom-and-apple-pie sort of finance, in that we just assume it’s a good idea. We don’t think through what it involves. In my research I detail the risk that is induced by a rebalancing strategy.

Q: Don’t you rebalance to reduce risk?

A: Let’s say you’ve got a portfolio of 60% stocks and 40% bonds. Now, imagine stocks drop and you’re in a prolonged bear market. If you’re rebalancing, you have to buy equities to get that proportion back up to 60%. So as stocks are falling, you’re buying more and more. Your portfolio is going to have a bigger drawdown than another portfolio where you didn’t rebalance.

It works in bull markets too. If equities are going up and up and you’re rebalancing, you’re dumping stocks. The market goes up. You dump more. All of a sudden your portfolio has done worse than if you had just let it run.

Q: So how should investors think about rebalancing then?

A: It is not smart to rebalance the last day of the year or the last day of the quarter by rote. It means you’re ignoring all of the information in the market. There’s lots of information out there, so use that
information. Use your judgment.

Q: If you don’t have time to figure this out, isn’t rote rebalancing worth the risk to keep from being overly exposed to stocks before a bear market?

A: If you have a very long time horizon, you may be able to bear the extra risk by rote rebalancing. You will still have bigger drawdowns in the value of your retirement portfolio, but you don’t need the money in the short term and you can ride out the risk. My point is all investors need to understand that rote rebalancing is an active investment decision that increases risk.

Q: You’ve also done research on Bitcoin. The smart money is pretty sure it’s a worthless currency. What don’t people get?

A: Almost everything. For instance, part of the misunderstanding is the focus on the price of the Bitcoin. You see that it was at $1,000, then it’s down to $200. People say, “Well, the bubble has burst,” and stuff like that.

They are looking at just one aspect of Bitcoin. These critics don’t start by asking themselves, “What problem does Bitcoin solve?”

Q: What problem does it solve?

A: I am tired of constantly getting phone calls from my credit card companies, having to go online to fix the 20 things I’ve got auto-debits for, and dealing with charges that are not mine on my card. These are problems that many people encounter.

Q: Bitcoin is safer?

A: Bitcoin is much safer. When you go to buy something, the retailer actually is able to check a common ledger of all transactions to make sure you actually have the money to spend. The public ledger, which is almost impossible to hack, solves the problem of double spending—using the same Bitcoin to buy two things. Merchants, such as restaurants, which are paying 3% to the credit card companies, love this.

For me, though, I look at Bitcoin not just as a currency, but what it could do in the future in other applications. Think of the Bitcoin technology as a way to exchange and verify ownership. It’s like getting into your car with your smartphone. You present cryptographic proof of ownership. You’re the owner, and it’s verified through this common ledger. The car is able to identify that it is your car, and so the car starts. You’re done.

Now suppose you borrow money from the bank for the car and you’re three months behind in your payments. You present your key, the car doesn’t start. The bank has the key that starts the car. So this is a very cool idea, right?

Q: There’s still a problem with the roller-coaster ride in Bitcoin prices, right?

A: There is, and Bitcoin currently is not a reliable store of value because of it. But the price swings could be solved with more liquidity—more money in the market. The recently launched Bitcoin exchange, which is fully regulated, insured, and backed by the New York Stock Exchange, should help with this. Bitcoin price fluctuations are a factor of it being so young.

The best way to judge Bitcoin is not to look at the price progression, but to look at the vast amount of money that’s being invested by venture capitalists into Bitcoin-related companies. That’s what I look at.

MONEY Investing

5 Things No One Tells You About Owning Vacation Home Rentals

Beach homes
Rich Reid—Getty Images/National Geographic

Owning a vacation rental can be a good investment, but a lot can go wrong if you're not prepared. Here's what to know before you buy.

Owning a vacation home can be a great investment opportunity, but it is one that does have some risk associated with it. Before you ever purchase a vacation home, you should do your homework and plan accordingly. Here are 5 things that can go wrong when owning a vacation home.

1. Annual Returns Can Go Negative

Oftentimes vacation homeowners are faced with a negative annual return especially if they had a down year for bookings or if they had a major repair. Before you ever purchase a vacation home, you should look at all the monthly bills associated with the property and be comfortable enough with the total amount that you could pay on these bills even if the vacation home did not bring in any money.

Just in a few recent years, we have had a terrorist attack on American soil and the second worst financial disaster in the history of our country. These two events had a major impact on people traveling and the amount of disposable income they have to spend on vacations.

The second thing you must research before you buy a vacation home is to figure out the average nightly rate guests are willing to pay for a similar property and how many nights a year the property should be occupied. Once you have these two figures, you can easily find out how much income the property will bring in on an annual basis. When you compare the income to the monthly expenses, you should have a positive cash flow. If not, I would think twice about purchasing the property.

Related: 5 Expert Tips for Managing Your Own Vacation Home Rental

You can find most of the information you are looking for by asking your realtor, property managers who manage properties in the area, and by calling homeowners who list their properties on VRBO.com.

2. You May Not Be Able to Visit as Often as You’d Like

Life has a funny way of jumping in and keeping us from doing things we really want to do. I can’t count on my hand how many times homeowners have told me that before they purchased a property in Orlando, they visited 3 or 4 times a year. Then after they purchased their vacation home, they never seem to be able to break away and visit. You oftentimes find this as kids get older and get into sports or other activities that seem to eat up your weekends.

3. Repairs Can Come Up

You will need to put money back into your property every year to keep it up and maintained. The National Realtors Association estimates that you should budget for 1.5% of the cost of your home to be spent on repairs and general upkeep every year.

So if you purchase a $200,000 vacation home, you should budget to put $3,000 back into the property every year. Now, if you are renting your vacation home out to short term renters, you might need to budget a little more. Guests may not treat a vacation home as nicely as they would their own house.

4. HOA Dues Always Go Up

If you purchase a vacation home in a community that has an HOA, the dues will always go up. In all the years that I have been managing vacation homes, I have never seen an HOA reduce their monthly or quarterly dues.

Related: 8 Clever Ways to Save BIG on the Monthly Bills for Your Vacation Rental

5. Vacation Homes Do Not Always Increase in Value

Just as we talked about before, when we have a huge natural, manmade, or financial disaster, investors get scared and sell their investments. This is what happened in 2008 and 2009. Too many vacation homes flooded the market, and the price on the houses plummeted. Many people were not able to sell their vacation home for anywhere near the price that they purchased it, and this caused many houses to go into foreclosure and some houses to be sold as short sales. The longer you hold onto a vacation home, the better chance you have of making money on the property, but buying a vacation home is not a surefire money maker.

Owning a vacation home is a good investment if you do your homework and research. Many people rush to buy a vacation home for the simple pleasure of just saying they own one. Take your time; buying any good investment is a marathon, not a sprint. Don’t be afraid to walk away from the property if you are not totally comfortable.

This article originally appeared on BiggerPockets, the real estate investing social network. © 2015 BiggerPockets Inc.

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MONEY financial advice

The Investing Danger That Smart People Face

man sitting in front of a wall of certificates
C.J. Burton—Corbis

You may be brilliant and a giant in your profession, but that can get you into a lot of trouble.

While returning from a business flight last year, I experienced a queasy stomach sensation. Later than night I woke up with searing pain across my abdomen. At my internist the next morning, I asked, “Do I have food poisoning?”

“I would say something more serious,” the doctor replied. “We need to get you a CAT scan.”

Off to the imaging center. The radiologist came out: “You have appendicitis,” he said. “You cannot pass Go, you cannot collect $200. You have to go straight to the emergency room. Take this copy of your images.”

I checked in at the hospital and was triaged. I slumped in a corner, clearing my email and calling the office. Eventually a doctor came out and asked why I was there.

“I have appendicitis,” I replied.

“Really?” he said. “Did you self-diagnose on WebMD?”

“No,” I said. “I went to a radiologist. I have slides! Look at my slides.”

He did, and then he operated on me.

In recovery later that day, I realized my surgeon has the exact same problem I have: “Yeah, doc, I know you have a medical degree and 30 years of experience, but I’ve been reading WebMD and I think…”

Or in my case: “Yeah, Dave, I know you have an MBA and 30 years of investing experience, but I’ve been reading [pick one] Motley Fool/Zero Hedge/CNBC/TheStreet.com, and I think…”

What do I say when clients think they know more than I do?

At my firm, we work with executive families. Our clients are brilliant; many have advanced degrees from top universities. These clients have ascended to the pinnacles of their careers and are accustomed to being the smartest person in the room.

Trouble starts, though, when the clients confuse brilliance with experience. For the most part, the clients let us do our job, but every once in a while, we’ll get an order along the lines of:

  • “Buy Shake Shack in my account.”
  • “Put 50% of my assets in emerging markets.”
  • “Put 100% of my assets in cash! So-and-so says the sky is falling!”
  • “My 14-year-old has ideas for restructuring the portfolio.”

We could say, “That is a stupid idea. We are totally not going to do that.” But that approach leads to resentful clients who may take their resentment, and their account, to another adviser.

I prefer to use these requests as opportunities for education, laced with humor. Several clients asked us about the Shake Shack IPO in January. We showed them a simple metric: stock market capitalization divided by store count. We asked, “If Shake Shack is valued at $26 million per store and McDonald’s is valued at $2.6 million per store, do you think that the Shake Shack burger is ten times better than the McDonald’s burger?” That reality check then led us into a discussion of the risks and rewards of emerging growth stocks versus value stocks.

Clients have told me that picking stocks must be easy.

“Really?” I say. “Do you like to play poker?”

“Love playing poker,” comes the reply. “Every Saturday with my buddies.”

“Really? Do you ever go to Atlantic City and play with the pros?”

“Gosh, no! I’d get my eyeballs ripped out.”

“Really? You don’t have an edge in poker, but you think you do have an edge in stock picking, which is 10,000 times more complicated than poker? Really?”

I started investing at 17, so it’s not out of the question that a 14-year-old might have good ideas (though the same parents who think their child could manage their portfolio never allow that kid to drive their car). If a parent wants to involve a child, we’ll send that child several books on investing and instructions on how to “paper trade.” If the child is willing to paper trade for a year and show me the results, I’m willing to take his or her input. (That conversation hasn’t happened yet, but one day!)

Ultimately, there has to be a line we won’t cross. If a client starts sending daily orders, or even worse, jumping into his or her accounts and making trades without us, we have to fire the client. That is a no-win situation for us: Anything that goes well in the portfolio is because of the client’s brilliance, while anything that goes badly is our stupidity. We’ll set that client free to make room for clients who do respect our expertise.

———-

David Edwards is president of Heron Financial Group | Wealth Advisors, which works closely with individuals and families to provide investment management and financial planning services. Edwards is a graduate of Hamilton College and holds an MBA in General Management from Darden Graduate School of Business-University of Virginia.

MONEY stocks

Are International Stocks Still Worth the Risk?

As the Eurozone continues to face the Greek economic crisis and slow growth overall for the continent, many investors are wondering if buying international stocks is worth the risk.

TIME Careers & Workplace

10 Things to Consider Before Investing In a New Project Idea

business-presentation
Getty Images

Following through on the wrong project ideas can be a big waste of resources

startupcollective

Question: What is one thing you ALWAYS do before green-lighting a new project or biz idea?

Test Assumptions

“There are lots of great ideas, but it’s easier to devise them than to execute them. So before you go off and try to execute new plans, it’s imperative you test some basic assumptions. If you already have customers, speak with them directly about the idea and take their feedback to heart. If you don’t, set up a landing page with an AdWords campaign to test response and prove the market exists.” — Adam Callinan, Beachwood Ventures

Ensure It Aligns With KPIs

“Before giving the go-ahead to a project or idea, it’s critical for me that the project aligns with our key performance indicators. If a project doesn’t drive to one of our key metrics, it’s likely not a worthwhile pursuit or use of resources. To have these kinds of checks and balances, it’s important to establish KPIs early on. Once in place, it’s a useful rubric to green-light ideas.” — Doreen Bloch, Poshly Inc.

Take a Step Back

“The worst thing you can do is pursue a new project or business because it sounds like an exciting opportunity. The problem is that pretty much every new idea seems like an exciting opportunity at first, but only the best of the best maintain that excitement weeks or months down the road. Set it aside and don’t think about it for a while. If you pick it back up and get just as excited, go for it.” — James Simpson, GoldFire Studios

Analyze the Pros and Cons

“I’m always thinking of new projects or business ideas to help grow our business, so I’ve developed a system to green-light them. First, I write them down and let them marinate for a few days. If the idea still seems legit, I’ll set up a call with my partner, discuss the plan/implementation in detail and write out a pros/cons list. We then analyze the data to make the final decision.” — Anthony Saladino, Kitchen Cabinet Kings

Run the Numbers

“Before moving forward with any new project, I want to make sure that it’s worth our time and the ROI is there. Numbers don’t lie. Financial projections are an essential tool for determining ROI and helping us make business decisions based on fact, not gut.” — David Ehrenberg, Early Growth Financial Services

Ask If It’s What People Want

“I see so many entrepreneurs, especially in the startup world, creating new businesses and products without even determining whether there’s a market for them or if people really want their product. Before green-lighting any new idea, I survey people, hold focus groups, run market tests through AdWords and even call people.” — Natalie MacNeil, She Takes on the World

Organize the Project First

“Before green-lighting a project, you should take the time to organize it. It is prudent to the success of the project or idea to know how long it will take, how it should be executed and who will be responsible before committing to a launch.” — Fabian Kaempfer, Chocomize

Define What Success Looks Like

“Without a clear definition of what success will look like for a given project, it’s impossible to tell whether it’s on track or even finished. By making a point of defining success before we even get started, we can decide how to measure a project and tell if it’s reaching the necessary goals.” — Thursday Bram, Hyper Modern Consulting

Run Some AdWords Tests

“Google AdWords is fantastic at validating market interest. I’ll run a few different ads over the course of a few days or a week to test how well they convert and at what rate. That tells me how crowded the space is and how strong the market interest is. Usually I don’t even create a landing page. Instead, I’ll send them to one of my other sites.” — Jared Brown, Hubstaff

Talk to Real-Life Customers

“Always test your ideas by talking to people in the real world before you invest tremendous amounts of time, energy and money. Don’t be afraid of anyone stealing your ideas. Get feedback in the wild. Even if it’s simply by sending an email to your customer list asking if it’s something they’d be interested in, that’s a start.” — Cody McKibben, Thrilling Heroics

The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

This article was originally published on StartupCollective.

MONEY stocks

The Problem With Stock Market Games? They Aren’t Boring Enough

150221_INV_game_1
Alamy

If you think investing is fun, you're probably doing it wrong.

People often say the stock market is a game, but a growing number of companies are taking that literally. A slew of new apps, like Ivstr, Kapitall, and Bux (the latter isn’t yet available in the U.S.), say they can teach you about investing by turning it into a short-term competition, complete with scoreboards and points.

The apps keep everything simple by having users compete to predict whether a stock, or portfolio stocks, will go up or down in the next few hours, days, or weeks. (Ivstr goes up to a year.) A few try and crank up the excitement a little further with head-to-head “battles” against friends and little encouragements like “OMG!” after a player completes a trade. It’s all fake money at first, but Bux and Kapitall let users move on to real dollars.

These ideas all sound kind of fun. But do they really teach what you need to know about investing? Stock market apps tend to center around choosing a group of stocks and trading frequently based on their performance.

The trouble is, you’ll do better with your real-life money if you skip all the trading and just buy and hold a low-cost, diversified fund. Research has shown even hedge funds run by market pros can’t beat the market in the long term. Mutual funds mostly don’t beat the index either. Warren Buffett is currently winning his $1 million bet that an S&P 500 index fund will outperform a fund of hedge funds, net of all fees and expense, over just one decade.

You can actually measure how much investors as group cost themselves by trading. According to the mutual fund research group Morningstar, the average U.S. equity mutual fund earned an annualized 8.2% over the 10 years from 2004 through 2013. But the the typical fund investor (as measured by adjusting for cash flows in and out of funds) earned only 6.5%, thanks to poorly timed fund trades. Its hard to imagine retail stock traders are any better at guessing market trends.

Still, maybe there is something to this whole investing as a game idea. We just need to tweak it a little.

Allow me to introduce MONEY’s forthcoming iPhone app, RspnsblFnnclPlnnr. Here’s how it works:

  • Instead of having users pick stocks and watch the market, you spend the first hour looking for funds with the lowest fees and setting up a scheduled deposit. Then it would close.
  • The game will let you come back to check your accounts once a year, to rebalance your stock and bond allocations. But each additional viewing would cost 1000 Investo-Points.
  • Every time you try to trade a stock, the game’s in-app avatar will shake its head at you and ask if you really, really want to do that.
  • You can compete with friends! Thirty years from now, you’ll all get badges showing your huge balances, which you can post on Facebook. Because there will definitely still be a Facebook.

Okay, I suspect my app will have trouble getting past the first round of venture funding. It’s not exactly the most exciting game in the world. Except for the parts where you get to send your kids to college and retire with a decent nest egg. That part is pretty fun.

MONEY portfolio

5 Ways to Invest Smarter at Any Age

dollar bill lifting barbells
Comstock Images—Getty Images

The key is settling on the right stock/bond mix and sticking to your guns. Here's how.

Welcome to Day 4 of MONEY’s 10-day Financial Fitness program. So far, you’ve seen what shape you’re in, gotten yourself motivated, and checked your credit. Today, tackle your investment mix.

The key to lifetime fitness is a powerful core—strong and flexible abdominal and back muscles that help with everything else you do and protect against aches and injuries as you age. In your financial life, your core is your long-term savings, and strengthening it is simple: Settle on the right stock/bond mix, favor index funds to keep costs low, fine-tune your approach periodically, and steer clear of gimmicks such as “nontransparent ETFs” or “hedge funds for small investors”—Wall Street’s equivalent of workout fads like muscle-toning shoes.

Here’s the simple program:

1. Know Your Target

If you don’t already have a target allocation for your age and risk tolerance, steal one from the pie charts at T. Rowe Price’s Asset Allocation Planner. Or take one minute to fill out Vanguard’s mutual fund recommendation tool. You’ll get a list of Vanguard index funds, but you can use the categories to shop anywhere.

2. Push Yourself When You’re Young

Investors 35 and under seem to be so concerned about a market meltdown that they have almost half their portfolios in cash, a 2014 UBS report found. Being too conservative early on—putting 50% in stocks vs. 80%—reduces the likely value of your portfolio at age 65 by 30%, according to Vanguard research. For starting savers, 90% is a commonly recommended stock stake.

3. Do a U-turn at Retirement

According to Wade Pfau of the American College and Michael Kitces of the Pinnacle Advisory Group, you have a better shot at a secure retirement if you hold lots of stocks when you’re young, lots of bonds at retirement, and then gradually shift back to stocks. Their studies found that starting retirement with 20% to 30% in stocks and raising that by two percentage points a year for 15 years helps your money last, especially if you run into a bear market early on.

4. Be Alert for Hidden Risks

Once you’ve been investing for several years and have multiple accounts, perfecting your investment mix gets trickier. Here’s a simple way to get the full picture of your portfolio.

Dig out statements for all your investment accounts—401(k), IRA, spouse’s 401(k), old 401(k), any brokerage accounts. At Morningstar.com, find “Instant X-Ray” under Portfolio Tools. Enter the ticker symbol of each fund you own, along with the dollar value. (Oops. Your 401(k) has separately managed funds that lack tickers? Use the index fund that’s most similar to your fund’s benchmark.)

Clicking “Show Instant X-Ray” will give you a full analysis, including a detailed stock/bond allocation, a geographic breakdown of your holdings, and your portfolio’s overall dividend yield and price/earnings ratio. Look deeper to see how concentrated you are in cyclical stocks, say, or tech companies—a sign you might not be as diversified as you think or taking risks you didn’t even know about.

5. Don’t Weigh Yourself Every Day

Closely monitoring your progress may help with an actual fitness plan. For financial fitness, it’s better to lay off looking at how you’re doing. A growing body of research finds that well-diversified investors who check their balances infrequently are more likely to end up with bigger portfolios, says Michaela Pagel, a finance professor at Columbia Business School. One reason: Pagel says savers who train themselves not to peek are more likely to invest in stocks. And research by Dalbar finds that investors’ tendency to panic sell in bear markets has cut their average annual returns to 5% over the past 20 years, while the S&P 500 earned 9.2%.

When you have the urge to sell, remind yourself that your time horizon is at least 20 years, says Eric Toya, a financial planner in Redondo Beach, Calif. “Outcome-oriented investors agonize over every up-and-down whim of the market and make poor timing decisions,” he says. “If your process is sound, you don’t need to panic.”

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MONEY Tech

What Apple Watch Means for Apple Stock

Apple CEO Tim Cook speaks about the Apple Watch during an Apple event at the Flint Center in Cupertino, California, September 9, 2014.
Stephen Lam—REUTERS

The Apple Watch will help with revenue growth this year.

The moment is almost here. Unless you live under a rock, you know the Apple APPLE INC. AAPL -1.09% Watch — the first new product since the death of Steve Jobs in 2011 — is about to be released. A new report courtesy of The Wall Street Journal (subscription required) outlines initial sales expectations for the new device. And if these estimates are correct, the unit could have significant implications for year-over-year revenue growth at the company.

Specifically, the Journal references “people familiar with the matter” who claim Apple ordered between 5 million and 6 million units, with half of production earmarked for the low-end Sport model, a third for the mid-tier Apple Watch, and the remainder for the high-end edition.

And while many details are still unconfirmed — most notably the pricing for mid and high-end models — it appears the Apple Watch could be the revenue growth driver the company needs for a typically slow period.

One quarter is not like the others

If the last four quarters are any indication, Apple could use a mid-year revenue boost. The first fiscal quarter (fourth calendar quarter) is where Apple really outperformed, growing revenue nearly 30% year-over-year. Led by the newest iterations of its iPhone, Apple smashed all expectations and propelled the stock to all-time highs.

That said, year-over-year revenue growth each quarter was rather lumpy, with the vast majority of that growth coming from its seasonally heavy first fiscal quarter. The chart below provides some perspective:

As you can see, although Apple grew its total revenue 14.8% over the last four quarters compared with the prior period, the vast majority of revenue growth was attributed to one amazing quarter. As a matter of fact, nearly two-thirds of the total 65.9% top-line growth came from the holiday quarter.

Meanwhile, mid-year performance was less impressive. And while it is important to note that 5% to 6% year-over-year growth is still amazing for a company pushing nearly $200 billion in revenue, a shot in the arm during the seasonally slower quarters should only be an additional catalyst for the stock.

How much revenue growth from the initial production order?

As you can see, one of those “low” growth quarters is the third fiscal quarter that typically starts around April 1st. With an April release expected, the Apple Watch will be most felt during that quarter. Assuming forecasts are correct — the company errs on the conservative side, if anything — the Apple Watch will add roughly 16.8% growth to the quarter year-over-year, holding all other factors constant.

Apple Watch Brand Watch Sport Apple Watch Apple Watch Edition
Units produced at midpoint 2.75 million 1.83 million .92 million
Estimated MSRP $350 $400* $5000*
Total revenue per segment $962.5 million $732 million $4.6 billion
Total revenue $6.3 billion

Source: Wall Street Journal. *Denotes estimate

The estimated $5,000 Apple Edition price point came courtesy of WSJ and was expanded upon by Jon Gruber of Daring Fireball. Mr. Gruber estimates the high-end model has the potential to add the aforementioned $4.6 billion in revenue per quarter — not just with its initial run. If so, the Watch product line would rocket up to nearly $6.3 billion, taking its place as one of the largest product segments after the iPhone. And even better for investors, the aforementioned product/revenue mix should have a positive effect on gross margins.That said, I personally think replicating these results every quarter will be challenging. The Apple Watch should not be an impressive revenue driver in its own right after initial demand is satiated, but it will help with revenue growth this year, managing expectations if the next version of the iPhone — tentatively dubbed the iPhone 6s — does not set fresh records.

Jamal Carnette owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Here’s the Biggest Change in Technology in Recent Memory

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With the bulk of the earnings season behind us, the stock market appears to be in a much better mood than it was a month ago. The S&P 500 is up 3.8% over the past month, while the tech-heavy Nasdaq 100 is up an even healthier 5.9%. Tech, it seems, is a popular sector refuge in the sea of uncertainty facing 2015.

But a closer look at the tech earnings from the past month shows a more complex story as not all tech names are being favored equally. In fact, some of the companies that dished out disappointing forecasts were hammered hard. If there is one key trend that emerged from the recent parade of fourth-quarter earnings, it’s that 2015 is turning into a stockpicker’s market for tech shares.

This is in contrast to the past couple of years, when waves of enthusiasm or caution swept across the tech sector at large. Last year, for example, an early rally for tech led to concerns that another bubble would emerge–concerns that were quickly dispelled by a brutal selloff come April. By June, stocks were recovering, and the Nasdaq 100 ended last year up 18.5% and the S&P 500 up 11.8%.

One trend from 2014 that’s continuing into this year is the outperformance of larger-cap tech stocks. Smaller tech shares tend to do well in the several months following their IPOs, then have a harder time pleasing investors. A good example is GoPro, which went public at $24 a share in June, surged as high as $98 in October and and fell back to $43 last week in the wake of its earnings report.

GoPro’s post-earnings performance illustrates the selective mood of investors. The company blew past analyst expectations with revenue growth of 75% and higher profit margins. But the stock plummeted 15% the following day as analysts raced to lower price targets. Why? GoPro’s outlook was seen as too weak to support its lofty valuation and its chief operating officer was leaving.

That pattern played out in other smaller tech companies. Yelp slid 20% after its own earnings report that beat forecasts but that showed worrisome signs of slower growth and slimmer profits this year. Pandora fell 17% to a 19-month low after disappointing revenue from the holiday quarter. Zynga finished last week down 18% after warning this quarter will be much slower than expected.

What all of these companies also have in common are uncomfortably high valuations. Even after the post-earning selloff, GoPro is trading at 37 times its estimated 2015 earnings. Pandora is trading at 75 times its estimated earnings, while Yelp is trading at an ethereal 371 times. The S&P 500 has an average PE of just below 20.

So which companies did the best this earnings season? As a rule, it was big cap names serving the consumer market: Apple, Twitter, Amazon and Netflix. What these four companies have in common beyond strong earnings last quarter is that all were seen as struggling by investors during some or all of 2014.

Compare them to big-cap tech names that posted decent financials in the fourth quarter but that weren’t seen as struggling before, but instead were seen as thriving tech giants. Google, for example, is up 6% over the past month, while Facebook is up 1%. Both are enjoying steady growth that was so consistent with their past performance it has a ho-hum quality to it.

By contrast, Apple, which had been portrayed by critics as a gadget giant past its prime, has seen its stock rally 21% in the past month to a $740 million market cap, the first US company to be worth more than $700 billion. Amazon, which investors feared would suffer prolonged losses because of its expansion plans, is up 29%. So is Twitter, another object of investor worry in 2014. Netflix, a perennial target of bears, is up 40%.

So what have we learned about the technology sector so far this year? On the whole, investors are favoring tech stocks in a world of uncertainty – where negative interest rates have become bizarrely commonplace, and where the next market crisis could come from a crisis involving the Euro’s value, or China’s economy, or oil’s volatility, or Russia’s military aggression.

But at the same time, investors have grown more selective about the tech names they invest in. They might snap up hot tech IPOs, but they’ll drop them quickly if those companies can’t deliver over time. They prefer big tech, especially companies that cater to consumers. And if those tech giants can engineer a turnaround, they’re golden.

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