MONEY Kids and Money

The Best Thing You Can Do Now for Your Kid’s Financial Future

CAN'T BUY ME LOVE, from left: Patrick Dempsey, Amanda Peterson, 1987.
Your teens summer earnings can't buy love, but they can buy a bit of retirement security. Buena Vista Pictures—Courtesy Everett Collection

Open a Roth IRA for your child's summer earnings, and talk her through the decisions on how to invest that money, suggests financial planner Kevin McKinley.

In my last column, I extolled the virtues of opening—and perhaps even contributing to—a Roth IRA for a working teenager. In short, a little bit of money saved now can make a big difference over a long time, and give your child a nice cushion upon which to build a solid nest egg.

Besides underscoring the importance of saving for retirement early and regularly, opening a Roth IRA can help your child become a savvy investor (a skill many people learn the hard way).

Here’s how:

Make the Initial Contribution

Your child needs to earn money if he or you are going to contribute to an IRA on his behalf. For the 2014 tax year, the limit for a Roth IRA contribution for those under age 50 is the lesser of the worker’s earnings, or $5,500.

The deadline for making the contribution is April 15, 2015. But you can start sooner, even if your teen hasn’t yet earned the money on which you will be basing the IRA contribution. (If the kid doesn’t earn enough to justify your contributions, you can withdraw the excess with relatively little in the way of paperwork or penalties.)

For a minor child, you will have to open a “custodial” Roth IRA on her behalf, using her Social Security number. Not every brokerage or mutual fund company that will open a Roth IRA for an adult will do so for a minor, but many of the larger ones will, including Vanguard, Schwab, and TD Ameritrade.

As the custodian, you make the decisions on investment choices—as well as decisions on if, why, and when the money might be withdrawn—until she reaches “adulthood,” defined by age (usually between 18 and 21, depending on your state of residence). Once she ages out, the account will then need to be re-registered in her name.

Depending on which provider you choose, you may be able to make systematic, automated contributions to the IRA (for example, $200 per month) from a checking or savings account. To encourage your teen to participate, you might offer to match every dollar he puts in.

Have the “Risk vs. Reward” Talk

How an adult should invest an IRA depends upon the person’s goals and risk tolerance—the same is true for a teen. You can help set those parameters by pointing out to your child that, since he’s unlikely to retire until his 60s this is likely to be a decades-long investment, and enduring short-term downturns is the price for enjoying higher potential long-term gains.

You might also show him the difference between depositing $1,000 now and earning, say, 3% annually vs. 7% annually over the next 50 years—that is, a balance of $4,400 vs. a balance of $29,600. Ask your child: Which would you rather?

No doubt, your kid will choose the bigger number.

But you also want this to be a lesson in the risks involved in investing. You might talk about what a severe one-year decline of 40% or more might do to his investment and explain that bigger drops are more likely in investments that have the potential for bigger growth. Now how do you feel about that 7%?

Some teenagers will be perfectly fine accepting the risk. Others may be more skittish.

You also might explain that there are options that will not decline in value at all—such as CDs and money market accounts. But should he choose those safer options, he’ll be trading off high reward for that benefit of low risk. In fact, while his money will grow, it will likely not keep up with the rate at which prices grow (“inflation,” in adult terms). So his money will actually be worth less by the time he’s ready to retire.

Some risk, therefore, will likely be necessary in order to grow his money in a meaningful way.

Choose Investments Together

Assuming he can tolerate some fluctuation, a stock-based mutual fund is probably the most appropriate and profitable strategy—especially since a fund can theoretically offer him a ownership in hundreds of different securities even though he may only be investing a few thousand dollars. You might explain that this diversification protects against some of the risks of decline since some stocks will rise when others fall.

A particularly-suitable option might be a “target date” or “life cycle” fund. These offerings are geared toward a specific year in the future—for instance, one near the time at which your child might retire.

Target date funds are usually a portfolio comprised of several different funds. The portfolio allocation starts out fairly aggressive, with a majority of the money invested in stock-based funds, and much smaller portion in bond funds or money market accounts.

As time goes by—and your child’s prospective retirement draws nearer—the allocation of the overall fund gradually becomes more conservative.

The value of the account can still rise and fall in the years nearing retirement, but with likely less volatility than what could be experienced in the early years.

One low-cost example of this type of investment is the Vanguard Retirement 2060 Fund (VTTSX).

Of course, if you choose a brokerage account for your child’s Roth IRA, you have the option of purchasing shares in a company that might be of particular interest to your kid. Choosing a company that is familiar to your child may not only inspire her to watch the stock and learn more about it, but eventually profit from the money she is spending on “her” company’s products.

If you’re going to go this route, you should include a discussion on the increased volatility (for better or worse) of owning one or two stocks, rather than the diversification offered by the aforementioned mutual fund.

Kevin McKinley is a financial planner and owner of McKinley Money LLC, a registered investment advisor in Eau Claire, Wisconsin. He’s also the author of Make Your Kid a Millionaire. His column appears weekly.

Read more from Kevin McKinley:

 

MONEY Investing

13 Things to Do with $100,000 Now

domino stacks of $10,000 bills
Ralf Hettler—Getty Images

Oh, if only six figures landed in your lap tomorrow. Hey, you never know. In case it does—or in case you're lucky enough to have 100 grand put away already—you'll want to have these smart moves in your back pocket.

1. Say “yes” to a master
Unless you live in one of the few areas where the real estate market hasn’t come to life, the decision of whether to move or improve is likely tipped in favor of remodeling, says Omaha appraiser John Bredemeyer. A new bedroom, bath, and walk-in closet may cost you $40,000 to $100,000. But it’s unlikely you’d find a bigger move-in-ready abode with every­thing you want for only that much more, especially after the 6% you’d pay a Realtor to sell your current home.

2. Burn the mortgage
If you’re within 10 years of retiring, paying off your house can be a wise move, says T. Rowe Price financial planner Stuart Ritter. You’ll save a lot of interest—$24,000, if you have a $100,000 mortgage with 10 years left at 4.5%. Eliminating the monthly payment reduces the income you’ll need in retirement. And as long as you’re not robbing a retirement account, erasing a 4.5% debt offers a better return than CDs or high-quality bonds, says Ritter.

3-5. Buy a business in a box
One hundred grand won’t get you a McDonald’s (for that you’ll need 10 or 15 friends to match your investment)—but there are a number of other good franchises you can buy around that price, says Eric Stites, CEO of Franchise Business Review. Here are three that get top raves in his company’s survey of owners:

  1. Qualicare Family Homecare (a homecare services firm)
  2. Window Genie (a window and gutter cleaning service)
  3. Our Town America (a direct mail marketing service)

6. Tack another degree on the wall
On average, someone with a bachelor’s degree earns $2.3 million over a lifetime, vs. $2.7 million for a master’s and $3.6 million for a professional degree. The payoff varies by field: In biology a master’s earns you 100% more, vs. 23% in art. So before applying, find out how much more you could earn a year, research tuition, and determine how long it’ll take you to recoup the investment.

7. Make sure you won’t be broke in retirement
More than half of Americans worry about running out of money in retirement, Bank of America Merrill Edge found. Allay your fears with a deferred-income annuity: You pay a lump sum to an insurance company in exchange for guaranteed monthly payments starting late into retirement. Because some buyers will die before payments start, you get more income than with an immediate annuity, which starts paying right away. A 65-year-old woman who puts $100,000 into an annuity that kicks in at age 85 will get $3,500 a month, vs. $600 for one that starts this year. In the future you could see deferred annuities as an investment option in your retirement plan; the Treasury Department just approved them for 401(k)s.

8. Get a power car that runs on 240v
For just over $100,000 (after a $7,500 tax rebate), you can be the proud owner of an all-electric Tesla Model S P85, with air suspension, tech, and performance extras. Yes, that’s a pretty penny. But you’ll help the planet, eliminate some $4,000 a year in gas bills—and get a ride that gets raves. “The thing has fantastic performance,” says Bill Visnic of Edmunds.com. It goes from 0 to 60 in 4.2 seconds and drives 265 miles on a charge, which requires only a 240-volt outlet.

9-12. Put hotel bills in your past
Think you missed the window on a vacation-home deal? True, the median price has jumped 39% since 2011, according to the National Association of Realtors. “But while you can’t buy just anything, anywhere, for 100 grand anymore, there are still decent deals out there in appealing ­places,” says Michael Corbett of Trulia.com. Here are four markets where the price of a two-bedroom condo goes for around that amount:

  • Sunset Beach, N.C./$96,000
  • Fort Lauderdale/$116,000
  • Colorado Springs/$117,000
  • Reno/$117,000

13. Tone up your core
The average American saving in a 401(k) has nearly $100,000 put away ($88,600, to be exact, according to Fidelity). With this core money, you’re likely to do better with index funds vs. active funds, says Colorado Springs financial planner Allan Roth. “The stock market is 90% professionally advised or managed, and outside Lake Wobegon, 90% can’t be better than average.” His three-fund portfolio: Vanguard’s Total Stock Market Index, Total International Stock Index, and Total Bond Market.

Related: 35 Smart Things to Do With $1,000

Related: 24 Things to Do with $10,000

Tell Us: What Would You Do With $1,000?

MONEY S&P 500

3 Lessons From S&P 2000

140826_LEDE_2
Getty

It has taken 16 years for the S&P 500 to climb to 2000 from 1000. Here are three takeaways for investors about the journey to the 2000 mark.

Updated: 5:45pm

On Tuesday, the index of 500 of the largest U.S. companies dashed across the 2000 level for the first time—16 years after crossing the 1000 milestone and a week after the Dow regained 17,000.

The market’s march from 1000 to 2000 will be remembered as tumultuous chapter in market history. The first S&P crossed the four-digit mark way back in February 1998, according to data from S&P Dow Jones Indices, before the bursting of the Internet bubble and the financial crisis. Between then and now, in fact, the market tumbled back to below 700 in 2009.

Here are three takeaways for investors about the journey to the 2000 mark.

1. It started in a tech rally, and it ended in a tech rally. But overall, technology has been a pretty average investment.

If you’ve been reading market news lately, you’d be forgiven for thinking the bull market is all about Apple, Google and other hot tech stocks. There’s no doubt these have been big winners: Apple APPLE INC. AAPL 0.2445% , which trades for more than $100 today, traded at a split-adjusted price of just 63 cents in February 1998, more than three years before the launch of the first iPod, according to S&P Dow Jones. But picking the next tech winner is no easy feat. On average, tech companies have delivered a total return of 6.1% a year since 1998. That’s actually slightly below the S&P’s 6.2% total return, suggesting plenty of losers and mediocrities offset a few fabulous winners.

2. The real boom was in energy.

If tech stocks are lagging the field, what’s led it? Energy stocks have been easily the best performing sector of the S&P 500, returning nearly 11% a year, on average, over the past 16 years, says S&P Dow Jones. While oil prices are is notoriously volatile, for the past 16 years they’ve made a steady climb, aside from a brief plunge during the late recession. Around $22 in early 1998, a barrel of oil is more than $90 today. Because if there’s one thing that’s arguably bigger than the Internet revolution, it’s been the the rise of developing nations like China, India and Brazil. Their growing number of factories and middle-class automobile owners have continually ratcheted up demand for energy commodities.

3. For buy-and-hold investors, dividends can be powerful over time.

While the S&P 500’s milestone is certainly worth noting, it’s also a reminder that paying too close attention to stock market swings isn’t the best strategy. While it’s taken 16 years for stock price levels to double, investors who simply bought and held stocks in a low-cost index fund could have gotten there sooner. (Somewhere around early 2013.) That’s because stock-market gauges like the S&P 500 don’t account for dividends. But if you hold a mutual fund that automatically reinvests dividends, your portfolio does. Dividends accounted for about a third of the S&P 500s average annual total return over the time it took for the index to rise from 1000 to 2000, according to S&P Dow Jones.

ycharts_chart(3)

Since early 1998, including dividends, the S&P 500 is up 170% as of yesterday (see the chart above), compared to almost 100% for the raw index. We’ll see if the S&P 500 can top 2000 mark today and make that a triple-digit percentage rise.

MONEY

Tell Us: What Would You Do With $1,000?

$1000 bill
Travis Rathbone

See how other readers would use a grand—then share your own grand ideas by tweeting with the hashtag #ifihad1000.

In coming up with 35 Smart Things to do with $1,000, MONEY put the question out to our readers via Facebook: What smart—or not so smart—thing have you done with that amount of money? What would you recommend someone else do with those funds? Or, what would you do if by some amazing stroke of luck, a grand fell magically into your lap today?

Some of your answers follow, but we’ll also be adding to this post in the next few days. So you still have a chance to share your money move, be it spending or saving, in earnest or good fun. Share your $1K fantasy with us on Twitter, using the hashtag #ifIhad1000.

“The first thing anyone should do before investing $1000 is to pay off revolving credit (credit cards) that’s a 15% to 20% return.”
—Danny Day
……….
“For a $1000, I purchased Bank of America stock.”
—Natalie TGoodman
……….
“It’s all about goals. Fund an emergency savings account, pay off debt, fund a retirement plan at least up to the employers match, pay down/off mortgage, save for college, etc. Needs before wants.”
—Nereida Mimi Perez Brooks
……….
“$1,000 would go into my money market as it really isn’t that much.”
—Paul Mallon
……….
For about $1,000 we purchased a last-minute 5-day Bahamas cruise for our family of four during the off-season month of September.”
—Marc Hardekopf
……….
“Put it in a casino and it doubled.”
—Norma Sande
……….
“I was given $1000 from my grandpa when I went to college. I started trading stocks in ’10 and made about $10,000 from it. Then in 2011 I bet it all on one stock with no stop loss, and it crashed overnight when the FDA shut them down. Lost 90%.”
Jaycob Arbogast
……….
“I would bank it to have savings for a rainy day.”
—Naomi Young Hughes
……….
“With $1000, all small debts were paid, which then made cash available to pay off a larger debt.”
Ana Chinchilla
MONEY Ask the Expert

Here’s How to Protect Your 401(k) from the Next Big Market Drop

140605_AskExpert_illo
Robert A. Di Ieso, Jr.

Q: Bull markets don’t last forever. How can I protect my 401(k) if there’s another big downturn soon?

A: After a five-year tear, the bull market is starting to look a bit tired, so it’s understandable that you may be be nervous about a possible downturn. But any changes in your 401(k) should be geared mainly to the years you have until retirement rather than potential stock market moves.

The current bull market may indeed be in its last phase and returns going forward are likely to be more modest. Still, occasional stomach-churning downturns are just the nature of the investing game, says Tim Golas, a partner at Spurstone Executive Wealth Solutions. “I don’t see anything like the 2008 crisis on the horizon, but it wouldn’t surprise me to see a lot more volatility in the markets,” says Golas.

That may feel uncomfortable. But don’t look at an increase in market risk as a key reason to cut back your exposure to stocks. “If you leave the market during tough times and get really conservative with long-term investments, you can miss a lot of gains,” says Golas.

A better way to determine the size of your stock allocation is to use your age, projected retirement date, as well as your risk tolerance as a guide. If you are in your 20s and 30s and have many years till retirement, the long-term growth potential of stocks will outweigh their risks, so your retirement assets should be concentrated in stocks, not bonds. If you have 30 or 40 years till retirement you can keep as much as 80% of your 401(k) in equities and 20% in bonds, financial advisers say.

If you’re uncomfortable with big market swings, you can do fine with a smaller allocation to stocks. But for most investors, it’s best to keep at least a 50% to 60% equities, since you’ll need that growth in your nest egg. As you get older and closer to retirement, it makes sense to trade some of that potential growth in stocks for stability. After all, you want to be sure that money is available when you need it. So over time you should reduce the percentage of your assets invested in stocks and boost the amount in bonds to help preserve your portfolio.

To determine how much you should have in stocks vs. bonds, financial planners recommend this standard rule of thumb: Subtract your age from 110. Using this measure, a 40-year old would keep 70% of their retirement funds in stocks. Of course, you can fine-tune the percentage to suit your strategy.

When you’re within five or 10 years of retirement, you should focus on reducing risk in your portfolio. An asset allocation of 50% stocks and 50% stocks should provide the stability you need while still providing enough growth to outpace inflation during your retirement years.

Once you have your strategy set, try to ignore daily market moves and stay on course. “You shouldn’t apply short-term thinking to long-term assets,” says Golas.

For more on retirement investing:

Money’s Ultimate Guide to Retirement

MONEY Google

The 8 Worst Predictions About Google

Magic 8-ball with Google logo
Flickr

In the 10 years since Google became a public company, there have been a lot of predictions made about the search engine giant. And it turns out, a lot have been wrong.

”I wouldn’t be buying Google stock, and I don’t know anyone who would.”
— Jerry Kaplan, futurist, in the New York Times, Aug. 6, 2004

The problem with making any public pronouncement about Google GOOGLE INC. GOOGL 0.3515% is that if you end up being embarrassingly wrong, someone can just Google that prediction to remind you how off the mark you were.

So that’s what we did.

With Tuesday being the 10th anniversary of the tech giant’s historic IPO, MONEY Googled the sweeping predictions that were made about the company and the stock leading up to and after the company’s public offering on Aug. 19, 2004, when Google shares began trading at an opening price of $85 a share.

To be fair, no one could have really predicted the stock would soar more than 1,000%—10 times greater than the S&P 500 index—in its first decade as a publicly traded company. You have to remember that in 2004, the Internet bubble was still a recent memory and Google’s offering was seen as the first significant tech IPO in the aftermath of the 2000-2002 tech wreck.

Still, it’s hard not to wince at some of the things said about what is now the third most-valuable company, with a market cap of nearly $400 billion.

1) Google won’t last.

What are the odds that it is the leading search engine in five years, much less 20? 50/50 at best, I suspect… — Whitney Tilson, The Motley Fool, July 30, 2004

In a memorable 2004 column, value investor Whitney Tilson argued that there was a significantly better chance that Dell would still be a leading computer company in the year 2024 than Google would be a leading search engine in 2009.

Obviously, he was wrong as Google still controls nearly 70% of all search and more than 90% of the growing mobile search market. (Meanwhile, Dell’s PC market share has shrunk considerably and desktop computers aren’t even a growth area anymore).

His argument may have made sense at the time. “Just as Google came out of nowhere to unseat Yahoo! as the leading search engine, so might another company do this to Google,” he wrote, adding that “I am quite certain that there is only a fairly shallow, narrow moat around its business.”

Yet Tilson made the mistake of underestimating the actual search technology. In the early 2000s, Google’s algorithms could search billions of pages at a time when rival search engines were able to get to just tens of millions. That lead in search capability gave Google enough time to leverage that technology into a dominant position in online advertising. Today, Google controls about a third of all global digital ad dollars.

2) Google’s founders won’t last.

These Google guys, they want to be billionaires and rock stars and go to conferences and all that. Let us see if they still want to run the business in two to three years. — Bill Gates at Davos, in 2003.

Microsoft co-founder Bill Gates was, of course, referring to Google co-founders Sergey Brin and Larry Page. Not only did the Google guys not go away, eight years later Page took over as CEO, and under his tenure the company became the dominant player in the smartphone market; made inroads into social media and e-commerce; and began dabbling in more futuristic technologies such as driver-less cars that are likely to boost interest in the stock going forward.

3) Google is a one-trick pony.

I mean, come on. They have one product. It’s been the same for five years — and they have Gmail now, but they have one product that makes all their money, and it hasn’t changed in five years. — Steve Ballmer, former CEO of Microsoft, in the Financial Times, June 20, 2008.

The bombastic Ballmer, who also predicted that the iPhone would go nowhere, wasn’t the first to call Google a one-trick pony. Yet Ballmer was flat out wrong. Today, Google has several tricks up its sleeve. The company still dominates search, but it is also a major player in mobile search, mobile operating systems, online advertising, e-commerce, social media, cloud computing and even robotics.

4) And who cares about search anyway?

Search engines? Aren’t they all dead? — James Altucher, venture capitalist (sometime in 2000)

You have to give Altucher credit for fessing up to what he admits may have been “the worst venture capital decision in history.” Three years ago, the trader/investor blogged about how his firm, 212 Ventures, had an opportunity in 2000 or 2001 to be part owner of the company that would later become an integral part of Google for a mere $1 million.

As he told the story, one of the associates of his firm had approached him with an opportunity in 2000. “A friend of mine is VP of Biz Dev at this search engine company,” the associate told him. “We can probably get 20% of the company for $1 million. He sounds desperate.”

To which Altucher replied: “Search engines? Aren’t they all dead? What’s the stock price on Excite these days? You know what it is? Zero!”

“No thanks,” Altucher said. That company was Oingo, which changed its name to Applied Semantics, which in 2003 was purchased by Google and re-branded AdSense. As Altucher points out, “Google needed the Oingo software in order to generate 99% of its revenues at IPO time. Google used 1% of the company’s stock to purchase Oingo, which meant that Altucher’s potential $1 million bet would have been worth around $300 million in 2011.

Oh well.

5) Microsoft will chase Google down.

Word has it that Microsoft will feature an immensely powerful search engine in the next generation of Windows, due out by 2006… As a result, Google stands a good chance of becoming not the next Microsoft, but the next Netscape. — The New Republic, May 24, 2004.

Alas, Microsoft’s Bing search engine didn’t come out until three years after the article said it would. And it wasn’t until last year when Microsoft truly embedded Bing into Internet Explorer on Windows 8.1.

Even if Bing gains traction on desktops — where it still only has about a 19% market share — search is transitioning to mobile. And there, Google utterly dominates and will probably stay in control because its Android operating system powers around 85% of the world’s mobile devices, versus Windows’ mere 3% market share.

6) Google isn’t a good long-term investment.

Don’t buy Google at its initial public offering. — Columnist Allan Sloan, Washington Post, Aug. 3, 2004.

I’m back from the beach and it’s clear that my advice turned out to be wrong…But now that the price is above the original minimum price range, I’m not in doubt. So I’ll repeat what I said three weeks ago. This price is insane. And anyone buying Google as a long-term investment at $109.40 will lose money. — Allan Sloan, Washington Post, Aug. 24, 2004.

Well, investors didn’t lose their shirts. A $10,000 investment in Google back then would have turned into more than $110,000 over the past decade. By comparison, that same $10,000 invested in the S&P 500 would have grown to less than $22,000. Howard Silverblatt, a senior index analyst for S&P ran some numbers and discovered that only 12 stocks currently in the S&P 500 wound up outpacing Google during this stretch.

To his credit, Sloan, now a columnist at Fortune, later admitted that “I was wrong, early and often, on Google’s stock price when it first went public, for which I ultimately apologized.”

7) Google isn’t a good value.

If you have any doubts at all about Google’s sustainability — you may, for example, recall that Netscape browsers used to be just as ubiquitous as Google home pages — you shouldn’t touch the stock unless its market capitalization is well under $15 billion. — MONEY Magazine, July 2004.

Okay, so we’re not infallible either. If you had followed MONEY’s line of thinking, you never would have purchased this stock because at the opening price of $85, the company was already valued at $23 billion. And it never dipped below that level on its way to a near $400 billion market capitalization today.

MONEY based its analysis on numbers crunched by New York University finance professor Aswath Damodaran, an expert on valuing companies.

Damodaran came to the $15 billion assessment after figuring that Google would generate a total of nearly $48 billion in cash over its lifetime. That turned out to be a bit off, as Google has generated that amount of free cash flow in just the past five years.

Again, this was an example of how difficult it is to estimate the future value of a corporation based on what the company is up to at the moment.

8) Google will avoid being evil.

Don’t be evil. We believe strongly that in the long term, we will be better served — as shareholders and in all other ways — by a company that does good things for the world even if we forgo some short term gains. This is an important aspect of our culture and is broadly shared within the company. — Google’s 2004 Founders’ IPO Letter.

Now, evil is in the eye of the beholder. Some privacy buffs think Google long crossed the line when it began tracking user behavior across all of its services including search, Gmail, You Tube, etc.

Progressives, meanwhile, point to Google’s lobbying efforts as a sign the company is behaving like any other corporation. The company has reportedly contributed to conservative causes such as Grover Norquist’s Americans For Taxpayer Reform, which seems to belie the company’s left-leaning Silicon Valley culture.

Then there’s the fact that Google’s chairman Eric Schmidt has stated that he is proud of how the company has managed to avoid billions in taxes by holding company profits in Bermuda, where there is no corporate tax.

Whether you think this qualifies as evil or not, it highlights what folly it was to try to ban evil.

As Schmidt stated in an interview with NPR:

“Well, it was invented by Larry and Sergey. And the idea was that we don’t quite know what evil is, but if we have a rule that says don’t be evil, then employees can say, I think that’s evil,” he said. “Now, when I showed up, I thought this was the stupidest rule ever, because there’s no book about evil except maybe, you know, the Bible or something.

Related:
4 Crazy Google Ambitions
10 Ways Google Has Changed the World

MONEY Google

10 Ways Google Has Changed the World

Google Earth view
Google

It's been a decade since Google went public. Here are 10 ways the company has transformed the market—and our lives— since.

Back in 2004, investors weren’t entirely sure what to make of Google, and skeptics abounded. Fast-forward to today, when we can look back at how far the company has come, in ways that inspire both awe and concern. Below are 10 examples of its influence.

1. It has changed our language. Despite Microsoft’s best efforts, there’s a reason “Bing” never caught on as a verb, let alone as a beleaguered anthropomorphic meme. The phrase “to Google” is so popular that the company is actually worried about losing trademark rights if the term becomes generic, like “escalator” and “zipper,” which were once trademarked.

2. It has changed our brains. Recent research has confirmed suspicions that 24/7 access to (near) limitless information is not only bad for human discourse—it’s also making us worse at remembering things, regardless of whether we try. And even if we aren’t conscious of it, our brains are primed to think about the Internet as soon as we start trying to recall the answer to a tough trivia question. Essentially, Google has become our collective mental crutch.

3. It set the stage for Facebook and Twitter’s sky-high valuations. Yes, lofty valuations based on mere speculation were also common back in the dot-com fervor of the ’90s, says Ed Crotty, chief investment officer for Davidson Investment Advisors. But Google broke new ground by proving that even just the potential for a huge audience could pay off in a big way.

“In the early days, when people were thinking in terms of web portals, the barriers to entry didn’t seem high for search,” Crotty says. That meant Google’s competitive advantage wasn’t clear. But “the tipping point was when Google was able to scale up their audience enough to attract ad agencies, and then further improve their algorithms, since those get better with scale. That’s partly why you see tech companies now willing to forgo profits for a period of time in order to build an audience.” And also why investors are willing to throw money their way.

4. It has taken over our cell phones. Since the first Android phone was sold in 2008, Google’s mobile operating system has bulldozed the competition. Today it claims nearly 85% of market share, nearly doubling its hold over the last three years. Next stop, self-driving cars?

5. It has transformed the way we use e-mail. Gmail was invented a decade ago, before bottomless inboxes were a sine qua non. It’s hard even to remember those dark ages when storage space was sacred—and deleting emails was as tedious-but-necessary as flossing. Today our accounts serve as mausoleums, housing long-forgotten files, links, and even whole relationships. Google itself has touted alternative uses for Gmail, such as setting up a virtual time capsule for your newborn—though in practice accounts can’t be owned by anyone under 13. But even that last point is about to change.

6. It’s changed how we collaborate. Back in 2006, Google acquired the company behind an online word processor named Writely. With that bet, Google created a world where it’s taken for granted that people can collaborate on virtually any type of document, whether for work, play, or (literally) revolution.

7. It has allowed us to travel the globe from our desks. Yes, MapQuest was popular first. But Google Maps (and Earth) has become much more than a tool for measuring travel routes and times. Since Google Street View came onto the scene in 2007, it’s been possible to “visit” distant destinations, give friends a virtual tour of your hometown, plan ahead of trips, and waste even more time on the Internet. Of course, the more popular a tool, the more useful it is to those who’d like to spy on us.

8. It has influenced the news we read. Ranking high in Google search results is serious business and can have a profound effect on the success of companies, media outlets, and even politicians. When I just Googled “how SEO affects journalism,” this link was at the top of my search results. How is that significant? Well, for one, that story itself has been so successfully search engine optimized that it still tops the list despite being four years old.

But most importantly, many of the concerns raised in the piece have not gone away—such as the pressure to “file some pithy blog post about the hot topic of the moment” at the expense of covering stories that would be prioritized based on traditional measures of newsworthiness. What that means for you, the reader: more headlines like this and this.

9. It has turned users into commodities. We all love free stuff, but it’s easy to forget that services offered by companies like Google and Facebook aren’t truly “free,” as data expert Bruce Schneier has pointed out. Remember that all of your data (across ALL of the services you use, and that includes Calendar, Maps, and so on) is a valuable good that Google is packaging and selling to its real customers—advertisers.

10. It’s changed how everyone else sees YOU. Unlike your Facebook profile, the links that turn up when potential employers (or love interests) Google you can be near-impossible to erase. Perhaps unsurprisingly, Google uses the fear of embarrassing search results to encourage people to manage their image through Google+ profiles.

Related:
4 Crazy Google Ambitions
The 8 Worst Predictions About Google

MONEY tech stocks

Which 80-Year-Old Billionaire Would You Trust With Your Tech Portfolio?

Diptych of Warren Buffett and George Soros
Mark Peterson/Redux (Buffett)—Luke MacGregor/Reuters (Soros)

Billionaire hedge fund manager George Soros and billionaire investor Warren Buffett are both buying tech stocks—but decidedly different kinds. So who would you bet your portfolio on?

Both billionaire investor Warren Buffett and billionaire hedge fund manager George Soros have had somewhat troubled relationships with tech stocks over the years.

Buffett famously punted on tech throughout the 1990s, declaring that “we have no insights into which participants in the tech field possess a truly durable competitive advantage.” So his investment company Berkshire Hathaway severely lagged the S&P 500 in the late 1990s — but at least it missed the tech wreck in the early 2000s. For Soros, the opposite was the case: His fund stayed at the Internet party too long in 2000.

Recently, though, both octogenarians have been dabbling in this sector — but in decidedly different ways.

SEC filings released on Thursday indicate that while Buffett is looking to the past for time-tested but overlooked plays on this sector, Soros seems only to be interested in future trends.

Buffett and ‘Old Tech’

Buffett is taking the old school approach. Quite literally. His tech sector holdings — indeed, his entire portfolio — looks as if it was straight out of the early or mid 1990s.

For instance, one of his biggest tech holdings, which recent SEC filings indicate he’s been adding to, is the century-old IBM INTERNATIONAL BUSINESS MACHINES CORP. IBM 0.1563% .

This technology service provider — which has run into difficulties in the crowded cloud computing space lately — has seen its revenue growth decline for several quarters while its stock has been under fire.

IBM Chart

IBM data by YCharts

No doubt, Buffett clearly sees IBM as a value, as the stock trades at a price/earnings ratio of around 9, which is about half what the broad market currently trades at. In his most recent letter to Berkshire shareholders, Buffett described IBM as one of his “Big Four” holdings, along with American Express, Coca-Cola, and Wells Fargo.

Beyond IBM, Buffett prefers lower-priced but slower growing internet backbone companies to fast-growing but pricey content providers. This is part of a tech investing trend that MONEY contributing writer Carla Fried recently addressed.

Other stocks he recently purchased or positions that he has been adding to include the Internet infrastructure company Verisign VERISIGN INC. VRSN 1.0714% and internet service providers Verizon VERIZON COMMUNICATIONS INC. VZ 0.8298% and Charter Communications CHARTER COMMUNICATIONS INC. CHTR 0.5512% .

Soros’ ‘New Tech” Bets

By contrast, Soros seems to be trying to ride current and future trends — albeit with highly profitable names.

In the second quarter, Soros added to his stake in the social media giant Facebook FACEBOOK INC. FB 1.3066% . Last month, Facebook shares hit a record high after the company reported robust profits. Plus, Facebook has proven to Wall Street that it can conquer the mobile advertising market, as nearly two-thirds of its revenues now come from mobile ads.

Facebook isn’t the only mobile bet Soros is making. He has also been recently adding to his stake in Apple APPLE INC. AAPL 0.2445% , which along with Google dominates the mobile computing space. New data from IDC showed that Apple’s iOS operating system held about a 12% market share among phones shipped in the second quarter — even though demand for iPhones has fallen as consumers await the arrival of the new iPhone 6, which will be introduced in September.

For the moment, Soros’ bets on these new tech names seem to be in the lead.

AAPL Chart

AAPL data by YCharts

But over the long-term, would you bet on Team Soros or Team Buffett?

MONEY mutual funds

Here’s Why You Should Never Pick a Stock Again

Claw game machine
Stacey Newman—iStock

The nation's largest pension fund and the most influential fund rater are both signaling that stock picking is dying as an investment strategy. If you're still trying to beat the market, it may be time to reconsider.

The giant pension fund known as Calpers, which oversees more than $290 billion on behalf of nearly 1.7 million California public employees, is reportedly mulling whether to cut back its stake in actively managed stock strategies — as well as hedge funds — according to the Wall Street Journal.

This doesn’t come as a total surprise — the California Public Employees’ Retirement System hinted at the move as early as last fall. Yet anything Calpers says or does sends ripples throughout the investment world because it is seen as such a trendsetter.

And right now, the trend is decidedly against trying to stock pick your way to investment success.

The $17 trillion mutual fund industry was initially built on the strength of the investment-picking skills of famous money managers like Fidelity’s Peter Lynch, who attracted billions of dollars in assets through the force of their reputations.

Yet in recent years, investor have started to recognize that such eye-popping returns are fleeting. In fact, they are the exception, not the rule.

A recent analysis of funds by Standard & Poor’s found that in the past three years, only about one out of five blue-chip stock fund managers outperformed the basic market benchmarks that they’re theoretically paid to beat. And only around one out of seven stock pickers who specialize in small-company stocks managed to beat a basic small-stock index.

Not surprisingly, investors have reacted to this lousy performance by redirecting their money elsewhere — in this case, to passively managed index funds that simply buy and hold all the stocks in a market benchmark like the S&P 500.

John Rekenthaler of Morningstar, noted in a head-turning column last week that over the past 12 months, passive mutual funds and exchange-traded funds attracted more than two thirds of all the net new money that flowed into U.S. funds

The numbers weren’t the most startling thing about Rekenthaler’s column, though. In it, Rekenthaler — the vice president of research at Morningstar, whose mission it is to rate fund managers — asked the rhetorical question “Do active funds have a future?” And he answered: “Apparently, not much.”

Like the Calpers’ move, Morningstar’s missive isn’t worth noting just because a lot of investors may happen to read it. Morningstar made its name helping small investors sort through thousands of active funds with devices like its “star ratings.”

Is this the tipping point where indexing becomes the primary way that individuals will invest going forward?

That’s hard to say. But if Calpers and Morningstar are starting to write off active managers, you have to think long and hard about sticking with them yourself.

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