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A long-term focus

Ask the Fool

Published: August 5, 2021

Q: What's the "Long-Term Stock Exchange"? -- P.W., Norwich, Connecticut
A: Launched last year, the Long-Term Stock Exchange (LTSE) aims to differentiate itself from more mainstream exchanges such as the New York Stock Exchange and the Nasdaq by its focus on long-term performance. Companies on traditional exchanges are often very focused on delivering good results every quarter to please investors and Wall Street, but that can hurt their ability to execute successful long-term strategies.
Companies on the LTSE will still have to issue quarterly reports, but they will also have investors who seek terrific long-term results. The LTSE also promotes transparency and commitments to "ESG" -- policies and practices that support the environment, social responsibility and good governance. It notes, "Companies that list with us seek to increase impact with employees, customers, like-minded investors and society at large."
The exchange hopes to connect companies and investors with similar values. Two of its first companies to be listed are Twilio and Asana, respectively a cloud computing company and a project management specialist.
Q: What does "street name" refer to? -- A.N., Jacksonville, North Carolina
A: In investing days of yore, when you bought a stock, you'd receive a paper certificate with your name and the number of shares on it. That rarely happens anymore, though. Now it's most common for brokerages to execute your stock purchase orders and then hold them in "street name" -- the brokerage's name.
The brokerage keeps track of the stocks, but they legally belong to you. This makes it easier and faster to sell, as you don't have to mail back the certificate. You can learn more about brokerages and find an inexpensive one at our sister site, TheAscent.com.
Fool's School
Think Twice About Variable Annuities
Annuities -- which are contracts allowing buyers to secure payments from insurance companies immediately or in the future -- come in three main types: fixed, indexed and variable.
Fixed annuities are fairly straightforward, offering to pay a predetermined sum for a specified period. Indexed ones tie your payments to the performance of a stock market index. Variable ones let you invest money in your annuity account in securities such as mutual funds, with your payouts linked to their performance.
Indexed and variable annuities are more complicated, and the Securities and Exchange Commission (SEC) has issued cautions about them. Either could serve you well, but you should research them deeply before buying. Or just stick with fixed annuities.
Here are some things to know about variable annuities:
They tend to charge significant fees. There's often a "mortality and expense risk charge," which may be around 1.25%, and an administrative fee, as well. Those two fees alone could have you paying $700 per year on a $50,000 annuity. Then there are fees for the securities in which you're invested, such as mutual funds. A mutual fund might charge 1% or more per year, which could cost you an additional $500 or more on that annuity.
Variable annuities tend to feature "surrender charges," too, if you want to withdraw a significant portion of your account within a few years of buying the annuity. The charge is usually a percentage of the amount you withdraw, declining each year -- so if you took out, say, $10,000 early, you might have to pay $700 in the first year, or $600 in the second, and so on.
Variable annuities are sometimes promoted by pushy salespeople, and they might point out that your gains and income earned in the account will accumulate tax-free until you withdraw the money. That's true, but it's also true of traditional IRAs and 401(k) accounts. Some variable annuities may feature extra goodies such as some long-term care insurance or a guaranteed minimum income, but such features will come at a cost.
Learn more about annuities at Investor.gov.
My Smartest Investment
Patience Can Be Profitable
My smartest investment was buying shares of Etsy at around $14 per share. I'm still holding, with shares at $68. -- S.S., online
The Fool responds: You wrote about this smart investment two years ago, and we hope you're still hanging on to those shares of the online marketplace for vintage and hand-crafted goods -- because they were recently trading around $209 per share!
This is a great example of how you can build wealth with some terrific companies -- as long as you hold on to your shares for years (or decades). That's easier said than done, because the stocks of great companies won't rise relentlessly without occasional pullbacks.
In March 2020, for example, Etsy shares plunged over 33% as the pandemic started to take hold. And between April and May of 2021, shares dropped further, in part because management tempered expectations about near-term growth. That's reasonable, because few companies can grow at breakneck speed continually, and our recovering economy has more people shopping in brick-and-mortar stores, which can hurt online retailers.
Big declines reflect investors losing confidence and selling -- which, ironically, creates great buying opportunities for those who do believe in the company. Today, with a market value recently over $26 billion, Etsy is viewed by many as a promising long-term investment. (The Motley Fool owns shares of and has recommended Etsy.)
Foolish Trivia
Name That Company
I trace my roots back to 1910, soon after the Wright brothers' first successful powered human flights, when a timber baron bought a Seattle shipyard in which to build airplanes. In 1916, my first female employee sewed linen wings for my planes. I merged with McDonnell Douglas in 1997. Today, based in Chicago and with a market value recently near $130 billion, I'm a top U.S. exporter and a top federal and defense contractor; I develop, build and service commercial airplanes, defense products and space systems. One of my factories was recently the world's largest building by volume. Who am I?
Last Week's Trivia Answer
I trace my roots back to 1979, when three friends saw great potential in software and information technology and founded me. Today, based in North Kansas City, Missouri, I'm a major player in health care information technology, and recently sported a market value near $24 billion. I employ more than 25,000 people, and rake in some $5.5 billion annually. As No. 1 in electronic health records worldwide, I serve more than 650,000 physicians and more than 2 million caregivers in more than 35 countries. I've been granted more than 600 patents. I acquired Siemens Health Services in 2015. Who am I? (Answer: Cerner)
The Motley Fool Take
Invest With Warren Buffett
Warren Buffett has seen the value of his company, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), grow by an annual average rate of 20% over the 55 years from 1965 to 2020 -- versus about 10% for the S&P 500 during the same period. It's growing more slowly these days, but still likely to be a reliable long-term grower.
Berkshire is a massive conglomerate, with around 360,000 employees and a recent market value topping $630 billion -- putting it among the top 10 companies globally and well ahead of "small" businesses such as Visa and Walmart. Much of its business is centered around insurance, rail transportation and energy, but it also owns lots of other kinds of companies, such as See's Candies, Benjamin Moore, Pampered Chef, Fruit of the Loom, Brooks, Duracell and International Dairy Queen.
Berkshire Hathaway also has plenty of stock in other companies. For example, it recently owned around 19% of American Express, 12% of Bank of America, 9% of Coca-Cola and -- perhaps most important -- 5% of Apple.
With Buffett turning 91 in August, he has lined up talented leaders to fill his shoes, and they will continue doing what Berkshire does so well: collecting income from its subsidiaries and redeploying some to its businesses that need it, while spending some to buy more companies or shares of stock. Its future looks bright. (The Motley Fool owns shares of and has recommended Berkshire Hathaway.)