TIME Innovation

Five Best Ideas of the Day: February 18

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. More than a decade ago, the international community tackled AIDS in Africa. Now we should do the same with cancer in the developing world.

By Lawrence N. Shulman in Policy Innovations

2. Finally, an app for kids to anonymously report cyber-bullying.

By Issie Lapowsky in Wired

3. Indians in the U.S. sent $13 billion home last year. A new plan aims to push some of that money into social good investments in India.

By Simone Schenkel in CSIS Prosper

4. Websites are just marketing. The next Internet is TV.

By John Herrman in The Awl

5. The U.K. may set up a digital court to settle small claims online.

By Chris Baraniuk in New Scientist

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY retirement planning

What Women Can Do to Increase their Retirement Confidence

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Izabela Habur—Getty Images

Knowing how much to save and how to invest can help women feel more secure. Here's a cheat sheet.

Half of women report feeling worried about having enough money to last through retirement, according to a new survey from Fidelity Investments of 1,542 women with retirement plans.

Those anxieties aren’t necessarily misplaced either.

Women have longer projected lifespans than men and even if married, are likely to spend at least a portion of their older years alone due to widowhood.

“So they need larger pots of money to ensure they won’t outlive their savings,” says Kathy Murphy, president of personal investing at Fidelity.

Earlier research by the company found that while women save more on average for retirement (socking away an average 8.3% of their salary in 401(k)s vs. 7.9% for men) they typically earn two-thirds of what men do and thus have smaller retirement account balances ($63,700 versus $95,800 for men).

Also, while women are more disciplined long term investors who are less likely than men to time the market, women are also more reluctant to take risk with their portfolios, says Murphy.

“And if you invest too conservatively for your age and your time horizon, that money isn’t working hard enough for you,” she adds.

How Women Can Increase their Confidence

Financial education can help women reduce the confidence gap, and get to the finish line better prepared, says Murphy.

According to the Fidelity survey, some 92% of women say they want to learn more about financial planning. And there’s a lot you can do for free to educate yourself, notes Murphy. As an example, she notes that many employers now offer investing webinars and workshops for 401(k) participants.

You might also start by reading Money’s Ultimate Guide to Retirement for the least you need to know about retirement planning, in digestible chunks of plain English. In particular, you might check out the piece on figuring out the right mix of stocks and bonds, to help you determine if you’re being too risk averse.

Also, simply calculating how much you need to save for the retirement you want—using tools like T. Rowe Price’s Retirement Income Planner—can help you make plans and feel more secure.

The 10-minute exercise can have a powerful payoff: The Employee Benefit Research Institute regularly finds in its annual Retirement Confidence Index that people who even do a quick estimate have a much better handle on how much they need to save and are more confident about their money situation. Also, according to research by Georgetown University econ professor Annamaria Lusardi, who is also academic director of the university’s Global Financial Literacy Excellence Center, people who plan for retirement end up with three times the amount of wealth as non-planners.

Says Murphy, “We need to let women in on the secret that investing isn’t that hard.”

More from Money.com’s Ultimate Guide to Retirement:

MONEY Markets

Oil Prices: Freaking Investors Out for 150 Years and Counting

Oil derricks moving up and down
Getty Images

The entire oil and gas industry has pretty much maneuvered from crisis to crisis since its inception.

Whenever I read or watch financial media coverage of oil prices lately, the image that comes to mind is a bunch of kids who just ate half their weight in candy, washed it down with a gallon of Red Bull, and then run around the playground at warp speed. They both move so fast and sporadically that is almost impossible to keep up with them.

Here is just a small example of headlines that have been found at major financial media outlets in just the past week:

  • Citi: Oil Could Plunge to $20, and This Might Be ‘the End of OPEC’
  • OPEC sees oil prices exploding to $200 a barrel
  • Oil at $55 per barrel is here to stay
  • Gas prices may double by year’s end: Analyst

What is absolutely mind-boggling about these statements is that these sorts of predictions are accompanied with the dumbest thing that anyone can say about commodities: This time it’s different.

No it’s not, and we have 150 years worth of oil price panics to prove it.

Oil Prices: From one hysterical moment to another

The thought of oil prices moving 15%-20% is probably enough to make the average investor shudder. The assumption is that when a move that large happens, something must be wrong with the market that could change your investment thesis. Perhaps the supply and demand curves are a little out of balance, maybe there is a geopolitical conflict that could compromise a critical producing nation.

Or maybe, just maybe, it’s just what oil prices do over time.

Ever since 1861 — two years after the very first oil well was dug in the U.S. — there have been:

  • 88 years with a greater than 10% change, once every year and a half
  • 69 years with a greater than 15% change, or once every 2.25 years
  • 44 years with a greater than 25% change, once every 3.5 years
  • 13 years with a greater than 50% change, once every dozen years or so

Also keep in mind, these are just the change in annual price averages. So it’s very likely that these big price pops and plunges are even more frequent than what this chart shows.

Investing in energy takes more stomach than brains

It’s so easy to fall into the trap of basing all of your energy investing decisions on the price of oil and where it will go. On the surface it makes sense because the price of that commodity is the lifeblood of these companies. When the price of oil drops as much as 50% over a few months, it will likely take a big chunk out of revenue and earnings power.

As you can see from this data, though, the frequency of major price swings is simply too much for the average investor to try to time the market. Heck, even OPEC, the organization that is supposed to be dedicated to regulating oil prices through varying production is bad at predicting which way oil prices will go.

The reality is, being an effective energy investor doesn’t require the skill to know where energy prices are headed — nobody has that skill anyways. The real determining factor in effectively investing in this space is identifying the best companies and holding them through the all the pops and drops.

Let’s just use an example here. In 1980, the price of oil — adjusted for inflation — was at a major peak of $104. From there it would decline for five straight years and would never reach that inflation adjusted price again until 2008. For 15 of those 28 years oil prices were one-third what they were in 1980. If we were to use oil prices as our litmus test, then any energy investment made in 1980 would have been a real stinker.

However, if you had made an investment in ExxonMobil in 1980 and just held onto it, your total return — share price appreciation plus dividends — would look a little something like this.

XOM Total Return Price Chart

So much for all those pops and drops.

What a Fool believes

The entire oil and gas industry has pretty much maneuvered from crisis to crisis since its inception, we just seemed to have forgotten that fact up until a few months ago because we had two years of relative calm. The important thing to remember is that the world’s energy needs grow every day and the companies that produce it will invest and make more money off of it when prices are high and less money when prices are low.

Based on the historical trends of oil, analysts will continue to go on their sugar-high proclamation streak and say that oil will go to absurd highs and lows so they can get their name in a financial piece, and they will try to tell you that this time it’s different because of xyz. We know better, and they should as well.

There’s 150 years of evidence just waiting to prove them wrong.

MONEY IRAs

The Retirement Investing Mistake You Don’t Know You’re Making

The investor rush to beat the April 15 deadline for IRA contributions often leads to bad decisions. Here's how to keep your investments growing.

It happens every year around this time: the rush by investors to make 11th-hour contributions to their IRAs before the April 15 tax deadline.

If you’ve recently managed to send in your contribution, congrats. But next time around, plan ahead—turns out, this beat-the-clock strategy comes at a cost, or a “procrastination penalty,” according to Vanguard.

Over 30 years, a last-minute IRA investor will wind up with $15,500 less than someone who invests at the start of the tax year, assuming identical contributions and returns, Vanguard calculations show. The reason for the procrastinator’s shortfall, of course, is the lost compounding of that money, which has less time to grow.

Granted, missing out on $15,500 over 30 years may not sound like an enormous penalty, though anyone who wants to send me a check for this amount is more than welcome to do so. But lost earnings aren’t the only cost of the IRA rush—last-minute contributions also lead to poor investment decisions, which may further erode your portfolio.

Many hurried IRA investors simply stash their new contributions in money-market funds—a move Vanguard calls a “parking lot” strategy. Unfortunately, nearly two-thirds of such contributions are still stashed in money funds a full 120 days later, where they have been earning zero returns. So what seems like a reasonable short-term decision often ends up being a bad long-term choice, says Vanguard retirement expert Maria Bruno.

Why are so many people fumbling their IRA strategy? All too often, investors focus mainly on their 401(k) plan, while IRAs are an after-thought. But fact is, most of your money will likely end up in an IRA, when you roll out of your 401(k). Overall, IRAs collectively hold some $7.3 trillion, the Investment Company Institute (ICI) found, fueled by 401(k) rollovers—that’s more than the money held in 401(k)s ($4.5 trillion) and other defined-contribution accounts ($2.2 trillion) combined.

Clearly, having a smart IRA plan can go a long way toward improving your retirement security. To get the most out of your IRA—and avoid mistakes—Bruno lays out five guidelines for investors:

  • Set up your contribution schedule. If you can’t stash away a large amount at the start of the year, establish a dollar-cost averaging program at your brokerage. That way, your money flows into your IRA throughout the year.
  • Invest the max. You can save as much as $5,500 in an IRA account in 2015. But for those 50 and older, you can make an additional tax-deferred “catch up” contribution of $1,000. A survey of IRA account holders by the ICI found that just 14% of investors take advantage of this savings opportunity. (You can find details on IRS contribution limits here.)
  • Select a go-to fund. Skip the money fund, and choose a target-date retirement fund or a balanced fund as the default choice for your IRA contributions. You can always change your investment choice later, but meantime you will get the benefits—and the potential growth—of a diversified portfolio.
  • Invest in a Roth IRA. Unlike traditional IRAs, which hold pre-tax dollars, Roths are designed to hold after tax money, but their investment gains and later payouts escape federal income taxes. With Roths, you also avoid RMDs (required minimum distributions) when you turn 70 ½, which gives you more flexibility. Vanguard says nine out of every 10 dollars contributed to IRAs by its younger customers under age 30 are flowing into Roths. Here are the IRS rules for 2015 Roth contributions.
  • Consider a Roth conversion. High-income earners who do not qualify for tax-deferred Roth contributions can still make post-tax contributions to an IRA and then convert this account to a Roth. The Obama Administration’s proposed 2016 federal budget would end these so-called backdoor Roth conversions, which have become very popular. Of course, it’s far from clear if that proposal will be enacted.

Once you have your IRA set up, resist tapping it until retirement. The longer you can let that money ride, the more growth you’re likely to get. Raiding your IRA for anything less than real emergency would be the worst mistake of all.

Philip Moeller is an expert on retirement, aging, and health. His latest book is “Get What’s Yours: The Secrets to Maxing Out Your Social Security.” Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: 25 Ways to Get Smarter About Money Right Now

MONEY stocks

How I Plan for the Stock Market Freakout…I Mean Selloff

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Mike Segar—REUTERS A trader works on the floor of the New York Stock Exchange (NYSE).

Advising people not to dump their stocks in downturn is easy. Actually persuading them not to do so is harder.

I got an email from Nate, a client, linking to a story about the stock market’s climb. “Is it time to sell?” he asked me. “The stock market is way up.”

Hmmmm.

If I just tell Nate, “Don’t sell now,” I think I might be missing something.

At a recent conference, Vanguard senior investment analyst Colleen Jaconetti presented research quantifying the value advisers can bring to their clients. According to Vanguard’s research, advisers can boost clients’ annual returns three percentage points — 300 basis points in financial planner jargon. So instead of earning, say, 10% if you invest by yourself, you’d earn 13% working with an adviser.

That got my attention.

Jaconetti got more granular about these 300 basis points. Turns out, much of what I do for clients — determining optimal asset allocations, maximizing tax efficiency, rebalancing portfolios — accounts for about 1.5%, or 150 basis points.

The other 150 basis points, or 1.5%, comes from what Jaconetti called “behavioral coaching.” When she introduced the topic, I sat back in my seat and mentally strapped myself in for a good ride. One hundred fifty basis points, I told myself — this is going to be advanced. Bring it on!

Then she detailed “behavioral coaching.” I’m going to paraphrase here:

“Don’t sell low.”

Don’t sell low? Really? The biggest cliché in the world of finance? That’s worth 150 basis points?

But it isn’t just saying, “Don’t sell low.”

It’s actually that I have the potential to earn my 150 basis points if I can get Nate to avoid selling low. That means I need to change his behavior. Wow. Didn’t I give up trying to change other people’s behavior January 1?

Inspired by Nate and the fact that the stock market is high (or maybe it’s low; the problem is we don’t know), I decided to think like a client might think and do a deeper dive into the research. Why not sell now? Why do people sell low? How can I influence, if not change, client behavior? I’ve got nothing to lose and clients have 1.5% to gain.

One interesting thing I learned in my research: Not everybody sells. In another study, Vanguard reported that 27% of IRA account holders made at least one exchange during the 2008-2012 downturn. In other words, 73% of people didn’t sell.

Current research on investing behavior, called neuroeconomics, includes reams of studies on over-confidence, the recency effect, loss aversion, herding instincts, and other biases that cause people to sell low when they know better.

Also available are easy-to-understand primers explaining why it’s such a bad idea to get out of the market.

The question remains, “How do I influence Nate’s behavior?” The financial research ends before that gets answered.

Coincidentally, I recently had a tennis accident that landed me in the emergency room. While outwardly I was calm, cracking lame jokes, inwardly I was freaked out.

Despite my appearance, the medical professionals assumed I was in high anxiety mode, treating me appropriately. The emergency room personnel had specific protocols. Quoting research and approaching panicked people with logic weren’t among them.

They answered my questions with simple sentences and gave me some handouts to look at later.

Selling low is an anxiety issue. And anxiety about the stock market runs on a continuum:

Anxiety Level Low Medium High
Client behavior Don’t notice the market Mindfully monitor it. “Stop the pain. I have to sell.”

That brought me to a plan, which I’m implementing now, to earn the 150 basis points for behavioral coaching.

During normal times, when clients are in the first two boxes, I make sure to reiterate the basics of low-drama investment strategy.

When I get a call from clients in high anxiety mode, however, I follow a protocol I’ve adapted from the World Health Organization’s recommendations for emergency personnel. Seriously. Here’s what to do:

  • Listen, show empathy, and be calm;
  • Take the situation seriously and assess the degree of risk.
  • Ask if the client has done this before. How’d it work out?
  • Explore other possibilities. If clients wants to sell at a bad time because they need cash, help them think through alternatives.
  • Ask clients about the plan. If they sell now, when are they going to get back in? Where are they going to invest the proceeds?
  • Buy time. If appropriate, make non-binding agreements that they won’t sell until a specific date.
  • Identify people in clients’ lives they can enlist for support.

What not to do:

  • Ignore the situation.
  • Say that everything will be all right.
  • Challenge the person to go ahead.
  • Make the problem appear trivial.
  • Give false assurances.

Time for some back-testing. How would this have worked in 2008?

In 2008, Jane, who had recently retired, came to me because her portfolio went down 10%. The broader market was down 30-40%, so I doubt her old adviser was concerned about her. Jane, however, didn’t spend much and had no inspiring plans for her estate. She hated her portfolio going down 10%.

Jane didn’t belong in the market. She didn’t care about models showing CD-only portfolios are riskier. She sold her equity positions. She lost $200,000!

The protocol would have worked great because we could have worked through the questions to get to the root of the problem. Her risk tolerance clearly changed when she retired. She and her adviser hadn’t realized it before the downturn.

Then there was Uncle Larry.

Like a lot of relatives, although he may ask my opinion on financial matters, Larry has miraculously gotten along well without acting on much of it.

Larry is in his 80s and mainly invested in individual stocks. This maximizes his dividends, which he likes. The problem was that his dividends were cut. The foibles of a too-big-to-fail bank were waking him up at 3:00 a.m. Should he sell?

When he called, I suggested that Uncle Larry look at the stock market numbers less and turn off the news that was causing him anxiety. I reassured him that he wouldn’t miss anything important. We discussed taking some losses to help him with his tax situation.

Although he listened, I didn’t get the feeling this advice was for him. Actually, the emergency protocol would predict this; the protocol doesn’t include me giving advice!

Uncle Larry and I discussed his plan. He ended up staying in the market because he couldn’t come up with an alternative. He also thought, “If I had invested in a more traditional way, I’d probably have ended up at the same point that I am at now anyway. So this is okay.”

He’s now thrilled he didn’t sell and, at 87, is still 100% in individual stocks.

MONEY the photo bank

An Artist Mints Her Own Take on Bitcoin

How one photographer is using digital currency to rethink the value of money and art.

Virtual currency like Bitcoin has captured the imagination of a lot of people, from techies to economists to drug dealers. Now, artists are riffing on the idea, and one is trying to use it to fund her work—and to raise some new questions about what makes both money and art precious.

Sarah Meyohas, a Wharton School of Business grad who is currently finishing up her MFA in Photography at Yale University, is launching her own digital currency, which she calls, cheekily, BitchCoin. (“If you’re a woman who is taking a stake in your future and aggressive, you’re a bitch,” says Meyohas.) Unlike Bitcoin, which is computer-generated by its users, BitchCoin represents a claim on a tangible asset, in this case Meyohas’ photographic prints. One virtual coin is supposed to correspond to 25 square inches of print. Each time Meyohas creates a coin, she’ll set aside a print in bank vault.

BitchCoin will be “mined” inside of Where, a gallery/shipping container in Brooklyn. Meyohas will be camped inside producing her work, while being streamed live via a webcam. Coin buyers will receive a certificate with key number encryption allowing access to an account on a free BitchCoin software program in which BitchCoins can be sent and received.

At one level, this is really just a clever take on crowdfunding art, similar to Kickstarter, IndieGogo and the relatively new Fotofund. The initial BitchCoins will sell for $100 each, and that money goes to Meyohas. But she also says the project is about “the role of value in reproducible objects like the photograph.” And about the value of money. Since the end of the gold standard, regular money is just pieces of paper with pictures, backed by nothing. Meyohas describes BitchCoin as a virtual currency backed by a real asset, the art. But that art, of course, is just pieces of paper with a pictures. That paradox is especially relevant to her own medium. As Meyohas puts it:

For a long time, the art world wouldn’t seriously collect photographs because they seemed too reproducible. It was only once printed and editioned, made materially scarce, that they could be valued. There is something about the value of money which you can print endless copies of that parallels the photographic print.

Meyohas is also exploring where the value of an artist’s work should be placed, on individual pieces or on her entire body of work. Unlike crowdfunding or indeed traditional art buying, in which a patron invests in a specific project or publication, BitchCoin is supposed to represent a piece of Meyohas simply “as a ‘value producer’.” Meyohas says a BitchCoin is exchangeable not for a specific photo, but for any of her “editioned, unframed archival chromogenic photographs.” She believes this approach gives her more of a controlling stake in her art and career; if her career is successful and her works grow in value, she can tap into that by creating new, more valuable coins.

By getting buyers to support a career, not merely one work, she’s harkening back to an older type of arts patronage. In the fifteenth and sixteenth centuries, the Florentine House of Medici which controlled Europe’s largest bank and thus exerted unrivaled social and political influence over the region—used their wealth to underwrite art, architecture, literary and scientific projects. They supported the careers of those geniuses lucky enough to be aligned with their inner circle: Michelangelo, Donatello, Leonardo, Raphael, Galileo, Brunelleschi and Vasari—among others.

This Sunday, February 15, at 8 p.m., Meyohas will be launching BitchCoin at the Trinity Place Bar, a bar in a bank (of course) at 115 Broadway, in the Financial District of Manhattan. At its initial offering, BitchCoin will back the edition of one photograph, aptly titled “Speculation.” Afterward, the exchange rate will fluctuate based on demand for BitchCoin, and of course the value of Meyohas’ artwork in the market.

Virtual currencies are wildly speculative, and buying art is all the more so. And the idea of BitchCoin as a store of value is, well… complicated. If you see BitchCoin as really a part of Meyohas’ artwork, what would it even mean to try to trade it for 25 square inches of her pictures? Since she says a BitchCoin would be destroyed whenever it was converted to art, wouldn’t that in turn destroy part of the art, and part of its value? Prompting such knotty, unanswerable questions is of course what Meyohas is up to with this project.

This is part of The Photo Bank, a recurring feature on Money.com dedicated to conceptually-driven photography. From images that document the broader economy to ones that explore more personal concerns like paying for college, travel, retirement, advancing your career, or even buying groceries, The Photo Bank showcases a spectrum of the best work being produced by emerging and established artists. Submissions are encouraged and should be sent to Sarina Finkelstein, Online Photo Editor for Money.com at sarina.finkelstein@timeinc.com.

MONEY Careers

The Stock Market Is No Place for Millennials

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Roberto Westbrook—Getty Images

Investing in yourself, not the S&P 500, often makes more sense for young adults.

When most people think of investing, they think of the stock market. But that is rarely the best place for young professionals to invest their hard-earned money. Instead, they need to be investing in themselves.

You’ve undoubtedly heard that it’s important to start investing early for retirement. Whoever tells you that will most likely mention the concept of compound returns, as well.

Compound returns are great. Heck, it’s widely repeated that compound interest is the eighth wonder of the world. But I’m not sold on the stock market strategy for twentysomethings with limited cash flow.

Most recent graduates come out of school filled with theoretical knowledge about their major. Although this knowledge can be useful at times, it is often a challenge to apply it to real-world situations. It’s kind of like dudes with “beach muscles”: They hit the gym hard every day so they can look great on the beach. If they ever get into an altercation and actually have to use their strength, though, they fail miserably. That’s because they have no practical experience.

The same goes for theoretical knowledge in the real world.

We never learn about life in college. We don’t learn how to make or manage our money. We are not taught how to communicate effectively or be a leader. And we certainly do not get trained on how to create happiness and love in our lives. These are the valuable things we need to learn, yet we get thrown out into the world to fend for ourselves. So we have to take it upon ourselves to learn and grow organically after college.

The good news is there are plenty of programs, courses, and seminars that actually teach this stuff. But they cost money.

It’s this type of education that I am referring to when I say that young professionals need to invest in themselves. The notion that the stock market will set you free (in retirement) is only half right. It does not take into account myriad possibilities, one of which is that investing in yourself early in your career may be a better choice.

Let’s assume that you start out making $50,000 a year and indeed have a choice. Here are two simplified scenarios:

Option 1: You invest in a taxable investment account every year from the age of 25 to 50, starting with $5,000, or 10% of your first-year salary. Both your salary and your yearly retirement contribution grow 3% annually throughout your career. In year five, you’ll be making nearly $58,000 annually, and you’ll be putting $5,800 away toward your retirement. And assuming the investment vehicle has a 7% compound annual growth rate, you’ll have $350,836, after taxes, in 25 years.

Option 2: You take that initial $5,000 and invest in yourself every year for five years. You choose to attend various training programs covering the areas of leadership, communication, and other practical skills that you can put to use immediately. You gain life knowledge, allowing you to perform better and maybe even connect with a career about which you are passionate. As such, your income increases by 50% over five years — to $75,000 — rather than simply inching up by 3% per year to $58,000. Then, in year five, you start contributing about $17,000 per year to your retirement ($5,800 plus all the extra money you’re earning, after taxes). Projecting forward 20 years using the same rates for contribution growth and investment returns as in Option 1, you’d end up with $829,635 after tax.

After playing out both scenarios above, we can see that Option 2 leaves you with $479,000 more than Option 1 does.

Certainly, I have made a few assumptions — one of which is that you invest all your extra earnings in Option 2 rather than raise your standard of living. And there is no guarantee that by investing in ourselves, we will increase our income. However, this same argument can be made for investing in the stock market. The difference is that by investing in ourselves, we maintain control over that investment. It’s up to us to learn necessary life skills to excel at whatever we choose as a career or life mission.

On the other hand, when we hand over our money to the stock market, we give away that control, basing all results on historical averages. I’m a big proponent on focusing on what we can control. And, as young professionals, our biggest asset is our human capital, or our ability to earn income. Why not focus here first, and save the investing for tomorrow, when our cash flow is at a much healthier level?

———-

Eric Roberge, CFP, is the founder of Beyond Your Hammock, where he works virtually with professionals in their 20s and 30s, helping them use money as a tool to live a life they love. Through personalized coaching, Eric helps clients organize their finances, set goals, and invest for the future.

MONEY Taylor Swift

You’ll Never Guess What Taylor Swift Wanted to Be When She Grew Up

150209_INV_Taylor_1
Kevin Mazur/WireImage

Hint: It wasn't an entertainer.

Pop musician and gazillionaire Taylor Swift is no stranger to business strategy.

In recent months the self-professed “nightmare dressed as a daydream” has flexed her guns by spurning streaming music giant Spotify, investing in a $20 million New York apartment, and applying to trademark phrases like “Nice to Meet You. Where You Been?” for use on future commercial endeavors.

So where did the 25 year old get her financial savvy? One clue comes from an interview she taped for YouTube back in 2011, where she discusses her relationship with her stockbroker father, Scott Swift. The singer says her dad has been telling her to save money and invest in utilities since she was a child.

“My dad is so passionate about what he does in the way that I’m passionate about music,” Swift says in the video. “This guy lives for being a stockbroker… And anybody who talks to him, like, he’ll talk about me for the first five minutes, and then it’s, like, ‘Say, what are you investing in?'”

Swift goes on to explain that at the age of eight, while other students at school said they aspired to be astronauts and ballerinas, she wanted to be a financial adviser when she grew up.

“I love my dad so much, because he’s so gung-ho for his job, and I just saw how happy it made him, and I just thought, I can broke stocks,” she said.

If that line makes you roll your eyes, remember, as a wise person once said, “haters gonna hate, hate, hate, hate, hate.”

 

MONEY Religion

Investing Options Grow for Muslims

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Stuart Dee/Getty Images

U.S. Muslims who don't want to profit from interest or invest in certain types of businesses have an increased number of choices.

A growing number of options address the special investing needs of Muslims.

The U.S. Muslim population is expected to reach 6.2 million by 2030, almost three times the nation’s 2.6 million Muslims in 2010, the Pew Research Center estimates.

Muslim-Americans are younger and better educated than the average U.S. citizen, according to Gallup data. Moreover, they want to see a greater number of appropriate financial products, according to market research firm DinarStandard.

Their investing needs are similar to those of people who want socially responsible investments, but it requires additional expertise on the part of their adviser.

Under Islamic, or Shariah law, investors must shun companies involved in, for example, alcohol, tobacco, gambling or weapons — restrictions common to many religious groups. Shariah law also prohibits interest, because loans should be charitable acts. This makes buying fixed-income securities problematic, and purchasing banking company stocks impossible.

Companies must also have little debt: about 30% interest-bearing debt to trailing 12-month average market capitalization, according to organizations that set Islamic investing standards.

More investment products are becoming available. They include sukuk, the Islamic alternative to bonds, where returns are based on profits from an underlying asset. One fund, Azzad Wise Capital Fund, is available to U.S. retail investors. More choices will likely emerge, advisers say.

Morgan Stanley adviser Mark Rogers in Farmington Hills, Mich., helped his first Muslim-American client about 10 years ago and now serves more. He does not view them differently from clients who want socially responsible investments, he said.

“Once you understand how to apply the filter, it’s just business as usual,” Rogers said.

Naushad Virji, chief executive officer of Sharia Portfolio, launched his investment advisory firm in Lake Mary, Fla., 10 years ago and now serves clients in 21 states, he said.

Virji generally sticks to individual large-cap stocks — names with low debt such as Apple and Walgreens Boots Alliance — but said he is excited about developments in Islamic finance.

Amana Mutual Funds Trust, for example, and a new ETF from Falah Capital, Falah Russell-IdealRatings U.S. Large Cap ETF , are helping meet investors’ needs. But there is more to be done, Virji said. “We are in the infancy of Shariah-compliant investing in this country,” he said.

Advisers should go through each holding with clients to make sure they are happy with the choices, said Frank Marcoux, a partner at Wells Fargo’s Nelson Capital Management, a Wells Fargo & Co. unit. Some clients are even more strict than even the standard-setters, Marcoux said.

Clients also should understand they cannot expect to beat a benchmark, when chunks of companies are missing, Marcoux said.

But the main point is that advisers can help Muslims get in the market, Marcoux said. “People are surprised that this type of product and strategy even exists, and very appreciative.”

MONEY Tech

Amazon Just Admitted It’s Making Less Than You Think

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Chris Ratcliffe—Bloomberg via Getty Images

Investors need to wise up to Amazon's accounting games.

Shares of Amazon AMAZON.COM INC. AMZN -0.5% surged after the company reported its fourth-quarter earnings on Jan. 29, with investors focusing mainly on the small profit that Amazon managed during the holiday season. For the full year, Amazon posted a net loss of $241 million despite both double-digit revenue growth and generating nearly $2 billion of free cash flow.

Free cash flow has long been the metric Amazon points to as the best way to measure the company’s performance, and Amazon certainly delivered on that front. But there’s a problem with Amazon’s free cash flow numbers: They ignore billions of dollars in spending that the company is financing through capital leases. Despite the impressive-looking free cash flow, Amazon is actually losing a tremendous amount of money, no matter how you slice it. I pointed this out in a previous article, which includes an explanation of exactly how Amazon accounts for its capital leases.

A funny thing happened during Amazon’s conference call a few days ago. Instead of just touting its free cash flow figures and moving on, as it usually does, the company actually mentioned these massive capital leases, pointing out that it finances some of its spending in addition to the capital expenditures reported on the cash flow statement. The biggest piece of this financing is for Amazon Web Services.

Why does this matter? Here’s a slide from Amazon’s earnings presentation showing the company’s reported free cash flow:

Source: Amazon.

This is essentially the same slide that Amazon shows every quarter, with one important difference: The second footnote points to some additional free cash flow measures in the appendix, including one which adjusts for its massive spending via capital leases. This is the first time that Amazon has actively pointed out its capital lease activity beyond the required disclosures in its financial statements. What does this slide look like?

Source: Amazon.

This changes the story pretty dramatically. Along with the $4.9 billion Amazon spent directly on capital expenditures during the past year, it also committed an additional $4 billion through capital leases. While this $4 billion doesn’t represent a cash expense today, these capital leases will have to be paid for during the next few years.

During the past 12 months, Amazon paid about $1.3 billion in capital lease payments, erasing most of its reported free cash flow. These payments are considered financing cash flows, therefore excluding them from the free cash flow calculation.

These payments are only going to rise as Amazon finances more of its spending. Next year, Amazon expects to spend a little more than $2 billion paying for these capital leases, according to its 10-K, excluding any additional capital leases that the company enters into next year. This will effectively wipe out any reported free cash flow, and these payments will continue to rise unless Amazon curtails its capital lease activity.

The second slide above shows how much Amazon is truly investing in its business. Unlike other companies with big public cloud business, like Microsoft and Google, Amazon doesn’t have billions of dollars in profit coming in from other businesses to finance all of this growth. During the past 12 months, Microsoft spent $5.3 billion in capital expenditures, with much of this going toward growing its cloud business. Google spent a staggering $9.7 billion.

If Amazon wants to remain competitive in cloud computing, it can’t slow down its spending. But it also can’t afford to keep spending as heavily as it has been. Amazon’s reported free cash flow numbers make it seem like the company can invest heavily and still manage to generate cash. Well, it can’t. Not even close.

Amazon’s long-term goal is to optimize free cash flow; but its reported free cash flow is meaningless if it doesn’t adjust for capital leases, or at the very least, payments on those capital leases. I applaud Amazon’s management for finally pointing out these capital leases to investors, as they are extremely important in order to truly understand Amazon’s business. But the company is still touting its nearly $2 billion in free cash flow as if it means something. It doesn’t.

If Amazon keeps doing what it’s doing, the company is going to be taking on a lot more debt during the next few years. It paid $210 million in interest during 2014, completely wiping out its operating income for the year, and this number will only rise if this heavy spending continues.

It turns out that Amazon isn’t some sort of magical cash machine, able to generate $2 billion of free cash flow while reporting far lower, or even negative, earnings, all the while investing heavily in capital-intensive businesses. Instead, it’s a company that’s borrowing billions of dollars in order to finance its growth, using lease accounting to make it appear profitable on a free cash flow basis. There’s nothing wrong with what Amazon is doing, but investors need to wise up to these sorts of accounting games.

Timothy Green has no position in any stocks mentioned, although he does own a Kindle, and he likes that quite a bit. The Motley Fool recommends Amazon.com, Apple, and Google (A shares). The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), and Microsoft. 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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This article previously appeared under a different headline, “Amazon Just Admitted That It’s Losing Billions.”

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