In this podcast, Motley Fool analyst Nick Sciple and host Ricky Mulvey discuss:
The buzz around Raw’s debut on Netflix.
What’s allowed in Tribal Combat and why wrestlers don’t respect the boundaries of an announcer’s table.
The new “100% margin” opportunities for WWE.
Why TKO Group Holdings is one of Nick’s largest personal stock investments.
Then, Motley Fool host Alison Southwick and personal finance expert Robert Brokamp discuss some fundamental ways to prepare your portfolio for 2025.
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A full transcript follows the video.
This video was recorded on Jan. 07, 2025.
Ricky Mulvey: In tribal combat, there are no rules. You’re listening, it’s Motley Fool Money. I’m Ricky Mulvey, joined today by Nick Sciple. Nick, I got a different level of excitement in my voice because we are now a Monday Night Raw recap show here on Motley Fool Money. Appreciate you being here.
Nick Sciple: Great to be here with you, Rick. We’ve got lots of friends in the industry on YouTube and other platforms. Happy to join the International wrestling community.
Ricky Mulvey: Last night, the former heavyweight champion of cable made its streaming premiere Monday Night Raw move to Netflix. We’ve known about this for about a year now, but last night was the first broadcast. What’d you think of the premiere? What’d you think of the broadcast?
Nick Sciple: It was a massive TV event, really felt that way, stars in the crowd from MaCaulay Culkin to Vanessa Hudgens to Travis Scott, not to mention the biggest wrestling stars in the world, John Cena, The Rock, Roman Reigns, Solo Sikoa. It really felt like a big WrestleMania event, and that’s, I think the way the WWE treated it. You have this first launch on Netflix, one of the biggest cable TV shows of all time, now moving to streaming, really a monumental moment when you think about how people consume media. But also think about lots of new first time viewers in the US tuning into Monday Night Raw, because it’s on Netflix, because it’s at the top of the banner, but more importantly, around the world. Netflix is the leading streaming provider in countries like India and the Middle East and Latin America. These are countries that already have an interest in wrestling, but haven’t had access to the content previously because this has mostly been on US cable TV channels. I think a really monumental moment for Netflix too. Again, continuing to move onto these live TV events after the Christmas Day event and the Paul Tyson fight. This is going to happen every week now. In a way, this is just another episode of Monday Night Raw, but I think it represents a transition of how we consume media and really how Netflix is trying to bring in customers.
Ricky Mulvey: It was another episode, but they brought in the superstars. You’re seeing John Cena, you were seeing Dwayne, The Rock, Johnson, both of whom did not wrestle. Nick, I don’t watch a lot of professional wrestling, I was reminded of how much of wrestling is standing and reacting to what other people have done as a crowd reacts. But this is also a program that was dominant but saw some declines. Raw on the USA network saw about two-ish million average viewers in late 2019. That was down to about one and a half million viewers in late 2024. This is a platform change, and this is a sporting entertainment product with a very devoted following. But do you think this platform change is going to restart that long-term viewership growth for the WWE?
Nick Sciple: I would say yes and no. In some ways, yes, you get out from under the declines in cable subscribership that we’ve seen, eat away at viewership for the past number of years. In other ways, no, part of what’s seen all programs decline in an overall viewership is there’s more options. In the Netflix era, you can click on any potential program anywhere. I think audiences in general are more fractured. I do think WWE is going to see a huge jump in viewership by moving to Netflix, both because of what I said earlier, the new drive by viewers, that because it’s at the top of Netflix, we’re going to program but also folks around the world. Netflix, again, they have rights to Monday Night Raw in the US and around the world, but they also have rights to WWE’s other programming, NXT, SmackDown, and the premium live events around the world. This is going to be at the top of the queue for folks globally that historically just haven’t had access, both WWE fans and non-WWE fans. Just having access to those demographics, I think, is going to be great for WWE. I think on the other side, Netflix gets access to the WWE audience. They have over 100 million subscribers on YouTube. I think lots of those subscribers are outside the US, so the ability to bring access to those viewers potentially is going to drive growth in Netflix subscriptions, particularly internationally.
Ricky Mulvey: I think you’re also going to have a younger viewer demographic that is flipping through to see what’s on, and when they want to do that, they go to Netflix. Not so much cable. Every Monday, there’s going to be an option of Monday Night Raw. There was a new viewer of the WWE last night, and that was my fiance because I had to put it on, and to order to prep for this, I made it through a little over two hours of it. I couldn’t do all three, I did not get to the CM Punk versus Seth Freakin Rollins match, Nick. But I made it through most of it. My fiance she was pretending not to watch it. But then she started asking some questions, and I thought, how wonderful I’m talking to an expert on this company tomorrow let’s save it for him. These were her questions about the WWE, specifically about the first match, which was tribal combat, Solo Sikoa versus Roman rains.
I’m going to throw you the questions because I didn’t want to answer then, so I’ll let you answer them. Here are the questions. Why are they out of the ring? Why is he throwing him at the announced table? I don’t think I like this more of a comment. What’s tribal combat? Why is there a commercial break in the middle of the match, and why are random people coming into the ring? Nick Sciple, your thoughts?
Nick Sciple: I saw these questions ahead of time, tried to think of ways that didn’t sound ridiculous. Couldn’t do it. Happy Sam’s tuning in, lots of viewers like her. But here’s how I answer it. This is a story made for TV. That’s why you’re going to see a commercial break in the middle of the match. In the same way you might see a commercial break after your favorite FX show goes to a cliffhanger. It’s been running for over 1,500 episodes in an unbroken story about good guys and bad guys, sometimes with new supernatural power. All makes sense in the context of the story. We all have to settle our conflict by fighting in the ring. That’s what’s happening here with Roman Reigns and Solo Sikoa battling out for the (inaudible) and who can be the real tribal chief of the bloodline.
But I think really it’s great that new viewers are tuning in to WWE through Netflix. There’s going to be a certain subset of folks that just become those dedicated WWE fans. It’s not for everybody and if you’re an outsider, it can sound really ridiculous in the same way that superheroes or reality shows do, but it has a dedicated audience that’s always been around. This is also a product that really travels globally in the same way those other ridiculous media programs and pieces of content do. That’s WWE for you, that’s my answer to Sam.
Ricky Mulvey: It was a unique viewing experience. I don’t know if it was an active choice on Sam’s part to tune into the program. You mentioned the ads. Let’s talk about it because there is a change in the business and change that’s meaningful for Netflix’s business with the introduction of ads, there are now ads in the ring, which is new for wrestling fans. Shout out to Snickers in Fortnite for sponsoring the action. This is new. Additionally, there were commercials that we mentioned, and these felt, Nick, to me, old school. We’re talking subway sandwiches, candy commercials, Netflix ads. I was watching the Golden Globes a couple of nights ago, it was pretty much just pharmaceutical ads. You’re seeing these almost older television style commercials going to this new streaming service. You follow this more closely than me. Any reflections on the ads or how the WWE changed its broadcast since moving to Netflix?
Nick Sciple: Yeah. The character of the ads, I think that just reflects who Netflix is selling to and the type of advertiser maybe they’re going after. I did notice a change in the ring when it comes to the number of ads in the ring. Previously, we’d only seen Logan Paul’s and a Prime drink in the ring. This time we saw four different in ring sponsors. You saw Fortnite as you mentioned, the center ring sponsors Snickers, Cricket Wireless Riyadh Center season, which we’ll come back to later. I think, in Hulk Hogan’s Real American Beer, which I think the promo for didn’t go the way they hoped and Hulk Hogan came out. WWE management has talked about they have more flexibility in how they run commercial breaks in the US than they had had on previous platforms. One thing I think to watch Netflix is not doing ads for international viewers doing special programming that goes to those folks, I think, long-term. That’s going to change. I think there’s going to be an ad in those platforms, not something you saw in the US, but something to keep an eye on. Also on the WWE in-ring advertising. This is all 100% margin revenue for WWE, just slapping a logo on the ring, and something that we’ve seen more emphasis under new management since the TKO merger. I think you expect to see a lot more of these types of deals as things go on with Netflix leveraging that audience.
Ricky Mulvey: Netflix deal for the WWE is 10 years, which is very long for sports broadcasting rights. When it was reported, no exact numbers, but deadline reported that it was more than five billion dollars. We’ve talked about one side of TKO Holdings. The other side is the UFC, Ultimate Fighting Championship, which is, Nick, a little bit more my speed. I’m happier to talk about that than the WWE. That’s going to be up for a new negotiation as the ESPN deal ends at the end of this year, in both of these businesses, for those listening, about half of the business of TKO. The revenue splits about half for WWE and the UFC. UFC is an interesting one for broadcasting rights because it’s enjoyed not just the money from going to ESPN, but also a sign of legitimacy for a new sport that was really frowned upon for the first, I would say, few decades of its creation. I see that the UFC probably likes the legitimacy that ESPN offers. But when you’re seeing this deal with Netflix, the excitement that’s happening there, are you expecting a similar move for the UFC to go to Netflix or what are you going to be watching here as these negotiations transpire?
Nick Sciple: Lots of folks seem to think Netflix is an option, lots of reasons to point to Netflix, as you mentioned, just the drive by viewership, the routine tune in that Netflix has that maybe you don’t see on other platforms. But I think likely that UFC sticks with ESPN because Dana White has said that he likes that relationship, legitimacy they get from ESPN. But the real answer is, why not both? Just like how many of the other big sports leagues, like the NFL and the NBA have been able to split their rights among folks like Amazon, ESPN, the NFL just put a game on Netflix. I think TKO is in a position to split up those UFC rights to be able to get the top dollar. Maybe it keeps the number UFC 305, 306, those types of events on ESPN and moves fight nights and that type of programming to Netflix or Amazon. Maybe we see the minor leagues of UFC. Dana White’s Contender series on Netflix while we remain with ESPN for the rest of the program. I think there’s lots of options. What TKO is going to do is maximize the money that they can get from their potential partners. They’re in a great position here where lots of people want to do business with them, and all the other big sports leagues have done their deals already. This is the last big fish left out there, they’re in a great position to be.
Ricky Mulvey: The other player that comes sprinting into the ring, I almost said from the top rope, but that metaphor doesn’t make sense. Sprinting into the ring from the afters is the Kingdom of Saudi Arabia. Is announced last night the royal rumble is going to Riyadh. Say that five times fast. It’s interesting to me because it’s meaningful for the business of TKO. Saudi Arabia has taken a larger interest in bringing combat sports and entertainment to its country. They’re bringing big heavyweight fights, they’ve already brought some UFC matches. Now they’re bringing more WWE over there. More sponsorship in general. There was an event at Sphere called Riyadh Season Noche UFC. What does this interest from the Kingdom of Saudi Arabia mean for the WWE and UFC parent company, TKO Holdings?
Nick Sciple: The short answer is money. WWE has had a relationship with the Kingdom of Saudi Arabia going back a number of years. They were the first of these big sports companies to carry out events there, and it spent tens of millions of dollars each time they carry out an event in Saudi Arabia. Also, now, again, as you mentioned, both the UFC and WWE generating sponsorship revenue from Riyadh Season and trying to promote the sport there. There’s been rumors that potentially Dana White is going to get into boxing with the help of the Kingdom of Saudi Arabia. But certainly having money interested in investing in your sport and marketing your sport has been great for the business of TKO Group. I think more broadly than Saudi Arabia’s international interest in WWE has been extremely meaningful for this business. They just set a new arena record for the gate for this event, the first raw event on Netflix in Los Angeles. But that broke records set previously in 2024 in Berlin, in Leon, France, in other international markets. I think the international ability to hold these events, receive rights fees, whether it’s from the Kingdom of Saudi Arabia or the Scottish tourism industry, all this is 100% margin in revenue for TKO, that all goes to the bottom line.
Ricky Mulvey: A little bit ago, actually, I picked up some TKO stock. Part of it is when we had a conversation a couple of weeks ago about wanting to be an arms dealer in this media environment. Plus, my experience in Denver. There was a regular UFC fight night between Rose Namajunas and Tracy Cortez. If you don’t know either of those names, the place was completely sold out for just a regular fight night. It was so impressive to me. Many investors, though, have been burned by putting money into fight promotions, and on a forward earnings multiple. This is a somewhat expensive stock. You’re looking at something in the 50s here. But I know you think about media, you think about valuation. I think you’re also an owner of TKO. What’s your bull case for the stock right now?
Nick Sciple: I am an owner of TKO, it’s one of my largest personal holdings. I think we laid out part of the bull case earlier when it comes to rights fees. I think the UFC is going to put up a really big number when they renegotiate their deal expected to be a 10 year deal for UFC later this year. Also, if you look forward to 2026 and further out, we’ve got the US rights for premium live events that are up for renegotiation. That’s for the WWE. Those are currently with Peacock, but that is something I might expect Netflix to pick up to add to those international premium live events. I think both those rights fees, the UFC rights and those premium live events in the US, excuse me, are going to be a significant step up and generate lots of revenue, again, 100% margin revenue for TKO. Also, I mentioned earlier, more site fees. We mentioned what’s going on with putting the royal rumble in Saudi Arabia. I expect that to be a record fee in order to get that event placed in Saudi Arabia.
I think you’re going to see more international events, higher site fees, and managements also talked about asking for site fees for things like fight nights, Monday Night Raw, SmackDown, that sort of thing. Again, lots of 100% margin revenue as you’re able to get that. More advertising revenue. Again, at 100% margin. As we said earlier, they had five ring sponsors this time around with Fortnite and many of those others. Previously, you just had one or zero, and that’s again, revenue that wasn’t there before for the company. At the same time, you’re still consolidating the UFC and the WWE teams. At the start of 2024, you consolidated the ad team between UFC and WWE that has fewer costs for the business at the same time, generating significant improvements to operations, sponsorship revenue, through the third quarter of 2024 was up 50% year over year. You have a business that’s got several catalysts on the horizon with more site fees, growing audience with Netflix and more cost getting squeezed out of the business as those two companies consolidate. I really like TKO going forward, I think it’s in a great spot in media.
Ricky Mulvey: Nick, we ran a little longer on that story than we normally do, but you know what? If I have a Motley Fool analyst telling me about a company that’s one of their largest personal holdings, I’m going to hold space for it on the show. Appreciate you being here. Thank you for your time and your insight.
Nick Sciple: Thanks, Ricky. Anytime.
Ricky Mulvey: If you enjoyed this conversation, and you’re ready to take your investing chops to the next level, head over to fool.com/signup to join Stock Advisor. That’s our flagship Investing Service. As a Stock Advisor member, you’ll get two new stock picks each month, rankings of a whole scorecard of companies, and access to all episodes of our premium podcast Stock Advisor Roundtable. That show is only available to premium Motley Fool members. It focuses on Foolish recommendations and takes a deeper dive into the businesses we cover, featuring Fool analysts you already know from listening to Motley Fool Money. Tom appears regularly on bonus episodes of Stock Advisor Roundtable to discuss what’s new in the Stock Advisor universe and to answer questions sent in from Motley Fool members. That’s fool.com/signup and I will also include a link in the Show notes.
Up next, Robert Brokamp and Alison Southwick offer up some tactical ways to improve your investing processes as you kick off the new year.
Alison Southwick: I think I’ve got the Christmas blues. Let’s go to Bicester Village and shop their extraordinary sale. Up to 70% off the original retail price in select boutiques, including All Saints, coach, and the North Face until 26th January. Bicester Village. Just under an hour from London. It’s shopping, but better. Terms and conditions apply. Visit bicestervillage.com for more information.
January is the time of year when you review how your portfolio performed. Evaluate the managers of your portfolio, yourself included, and maybe do some rebalancing. But it can also be a time to do some soul-searching about what kind of an investor you want to be.
Robert Brokamp: Yeah, as an investor, you really have a lot of decisions to make. How much money you’ll put in various assets and how you’ll get exposure to those assets? Are you going to buy individual securities or just invest in mutual funds or index funds? Are you happy with your current portfolio or should you move to some things around? Finally, are you going to make all these decisions on your own, or are you going to get some professional help? The start of the New year is the perfect time to sort of reevaluate all those decisions.
Alison Southwick: Now, those are a lot of big decisions. Where should someone start?
Robert Brokamp: Let’s start with something boring, cash. Everyone needs it. You need to pay your bills. You need to cover expenses that you’ll have in the next few years. That money, of course, should not be in the stock market. It’s a year later. You’re a year closer to your goals, so it might be time to add some money to your cash cushion. Then there’s the emergency fund of 3-6 months’ worth of essential expenses to cover in case you lose your job or you have an unexpected big-ticket expense. I say this as someone who woke up on Christmas Eve morning to a busted water heater in a flooded basement, so you’re going to have that money set aside. Start by determining how much cash you need and then make sure you’re getting a competitive yield on it. The Federal Reserve cut rates a few times last year, likely going to be another cut or two this year, but it’s still possible to get 4% or more on your cash, at least for now, but you have to go search for it. One place to search is Motley Fool Money, a Motley Fool website that has the same name as this podcast, used to be known as the Ascent and make sure you do the same for the cash you have in your brokerage account. The default options are often well below what you could get from a money market fund or even a higher-yielding cash option in the brokerage account, but you just got to do a little more digging.
Alison Southwick: It starts with choosing how much to have in cash and getting a decent yield on that money. But how do you determine how much you should have in stocks and bonds?
Robert Brokamp: Well, you can come up with that on your own or get professional help with doing it. But even if you go it alone, it can help to see what other professionals are doing, and the easiest way to get both help and to see what Wall Street thinks is via target date funds. These are funds that have a reasonable mix of cash, bonds and stocks of all types. They do all the rebalancing for you, and they gradually get more conservative as the retirement date in the name of the fund approaches. I took a look at the average allocations for some of the funds offered by BlackRock, Fidelity, T.R. Price and Vanguard, and here’s how they currently break down. So a target date fund for 2025, in other words, someone who’s retiring this year, average allocation, 46% stocks, 54% bonds in cash.
A 2035 fund, so someone retiring in a decade, 66% stocks, 34% cash and bonds, and then a 2045 fund, 85% stocks, 15% bonds in cash. I think those are reasonable starting points for someone who has maybe a middle-of-the-road, moderate risk tolerance. If you’re a more aggressive investor who’s more comfortable with risk, you could probably increase the stock allocations by maybe 5-10 percentage points. Also, if you dig into the funds, you’ll see how they’re allocated to assets like small caps, maybe different types of bonds, international stocks. What may be surprising if you look at these is that they tend to have more than a third of the stock allocation invested in international stocks, which really weighed on the performance of target date funds since US has outperformed for well over a decade now. But one of these years, international stocks will outperform. We just don’t know when.
Now, the downside to target date funds is that they’re intended for a very broad audience, millions of people. If you’re looking for more personalization, you might want to check out Robo-advisors. Two of the bigger providers of Robo advising is Betterment and Wealthfront though some of the big name firms also have these types of services like Vanguard and Schwab. They charge a bit more around 0.25% a year, but are more customized to your risk tolerance. Some also offer benefits like tax loss harvesting and maybe a little bit of financial planning. A third option, if you’re looking for professional help, of course, is actually hiring a financial advisor. This will be a good bit more expensive, but you’ll be able to meet regularly with an actual human being who also ideally can create a comprehensive financial plan for you. We like fee-only financial advisors. You pay them for their advice. There are fewer conflicts of interest in terms of commissions and things like that, and you can find fee-only advisors at the Garrett Planning Network, G-A-R-R-E-T-T, NAPFA, National Association of Personal Financial Advisors, and the XY Planning Network. All that said, you’ll have more control over your allocations as well as how you do the rebalancing if you do it all yourself. Again, I think the broad allocations and target date funds are a good starting point, which you can then adjust for your risk tolerance. A couple of other Foolish rules of thumb to consider are limiting the amount of your portfolio in one stock to 10% and limiting the amount that you have in one sector to around 20%-25%. Those aren’t hard and fast rules, but it’s an indication that your portfolio is becoming more concentrated.
Alison Southwick: We don’t really talk much about bonds here at The Motley Fool because, well, unless you’re Steve Broido, most Fools find them pretty boring. But they also have not been good investments. In fact, over the last five years, the Vanguard total Bond Market ETF has lost money, so do investors really need bonds?
Robert Brokamp: Historically, you invested in bonds because they earned anywhere 1-3% above cash, but that has not been the case for the last five years or so. In fact, we’ve been going through just about the worst stretch for bonds in US history, thanks to a mixture of really low interest rates during the pandemic, and then the rise of interest rates since then, because when rates rise, bond prices fall. The forward outlook for bonds looks better today with a 10-year treasury yielding around 4.6%. I think bonds are worth considering, but you’ll get more predictability from owning individual bonds versus bond funds. When you own an individual bond, you know exactly how much interest you’ll get. You’ll know how much you’ll get when the bond matures, assuming the issuer is still in business. With bond funds, they move up and down, you don’t have quite that certainty, except for one type of bond fund that I think is worth considering. They’re called target maturity bond ETFs or defined maturity ETFs. They only own bonds that mature in the same year, so you get some of the benefits of owning individual bonds. Two of the biggest issuers of these are Invesco, and these types of ETF through Invesco are called bullet shares, and then iShares, and this type of bond fund is called an iBond, but it’s not to be confused with the iBonds that Uncle Sam issues. All that said about bonds, I won’t blame you if you just want to stick mostly with higher-yielding cash or treasury bills these days because you’re not getting that much extra yield from bonds right now.
Alison Southwick: Now it’s time to talk about the investments near and dear to Fools’ hearts, stocks, or, as we sometimes pronounce it, stocks. There are a few ways to invest in the stock market.
Robert Brokamp: Yes, the Motley Fool was founded more than 30 years ago on the belief that the stock market is the best avenue for creating long-term wealth. The good news is that you can actually buy the entire stock market via an index fund. Let’s start there. Unless you’re an avid stock picker. I’m a big believer in making index funds the foundation of your portfolio. The most common choices are a fund based on the S&P 500 or an index fund just based on the total US stock market, and those are great starting points. But there are also index funds based on different types of indexes, and you can use them as a way to get diversified low-cost exposure to a segment of the market that you don’t have, such as international stocks, small-cap stocks, maybe different sectors, even a diversified collection of dividend payers. The bottom line is that index funds are really hard to beat because they don’t pay a team of fund advisors, managers to pick and choose the investments, so their costs are very low. Over most 10-year periods, index funds beat 80-90% of actively managed funds they compete against, actively managed funds being those ones that do pay a team of managers to pick the investments. You’d think that they could beat an index fund, but the evidence is that most don’t. You could just stop there. You could build a diversified collection of index funds, rebalance once a year or so and spend your time on things other than your portfolio. But if you’re listening to this podcast, my guess is that you want to devote more time to it and you want to pick individual stocks, likely because you’re hoping to beat the market. When you go this route, when you move more of your portfolio into individual stocks, the range of potential outcomes widens. Greater potential reward, but also greater risk. For example, three of the best-performing stocks in 2024 were Nvidia, which returned 171%, Vistra, which returned 260%, and Palantir which returned 341%.
Just over the past decade, Nvidia has returned an average of 75% a year. You’re not going to get those types of returns and index ones. On the other hand, you usually won’t see an index fund drop 70-90% in a year or just lose everything as you will with individual stocks. You may also often hear that the US stock market has historically always recovered from a downturn, which is true. You can’t say that about individual stocks, and I’ll just give you one example. Cisco traded above $80 a share in 2000, then fell to $10 a share by 2002, and today it’s around $60. It’s still 25% below its all time high set almost 25 years ago. Owning individual stocks requires more time, more knowledge, and attention. But if your goal is to beat the market, it’s the way to go, and it can be very rewarding both financially and intellectually. If you’re going to go that route, one Foolish rule of thumb is to own at least 25 stocks. Frankly, just be honest with yourself about whether it’s working for you. Choose an appropriate benchmark. Could be the S&P 500, could be a total stock market index fund. Could be if you’re just focusing on value stocks, just choose a value stock index fund or just a value stock index and keep yourself accountable. If you’re not beating that benchmark after five or so years, despite all your time and attention, maybe you’d be better off just investing in an index fund and spending your time doing other things.
Alison Southwick: We’ve talked about how to allocate someone’s current portfolio, cash, bonds, stocks. But how should investors think about account types and where to put new contributions? We’ve covered asset allocation. Now let’s talk asset location.
Robert Brokamp: Yeah, and the account you choose depends on your goal, so for retirement, go with a 401(k) or an IRA, you’re going to get tax advantages. You want to contribute to a 401(k) at least to get the full employer match, and then go to an IRA if your 401(k) isn’t so great, meaning maybe it has high costs or limited investment choices. Maybe you want to pick individual stocks, and you can’t do that in most 401(k)s. On the other hand, you may just stick with the 401(k) if you’re not eligible for a Roth IRA or you’re not eligible to deduct your contributions to the traditional IRA. Generally speaking, you’ll pay a penalty on withdrawals from retirement accounts before age 59.5, though there are some exceptions, so if you need the money before that age, you’re probably better off investing in a regular brokerage account, but you’ll pay taxes every year. You want to lean toward tax-efficient investments, maybe stocks that don’t pay dividends or index funds are actually pretty efficient, as well. You would use your retirement accounts for your tax-inefficient investments like REITs, maybe high-yield bonds. If you have a Roth account, you would choose the Roth for the investments that you think have the greatest potential, because that’s the tax-free account, and that’s the one you want to grow the most. Then I’ll just add one other type of account.
If you’re saving to pay for an education, choose a 529 or a cover Dell. For both of them, withdrawals are tax-free, as long as the money is used for qualified education expenses, the biggest difference is with the 529, much higher contribution limits, really, there’s no contribution limit. Pretty much have to choose from a menu of mutual funds, the cover Dell. You can only contribute $2,000 a year, but you can use it to invest in individual stocks. Then finally, on this topic, as you think about which accounts will receive new money this year, use those contributions to rebalance your portfolio. Put money in the assets that you think you don’t quite have enough in, could be cash, could be bonds, could be different types of stocks that are lagging. Or if you’re retired, use withdrawals to pair back over-weighted assets. Maybe you’ve had some stocks that have done really well. You might want to sell some shares of those to reduce your risk, but also that’s how you’re going to raise some cash to pay your bills.
Alison Southwick: All right Bro, how I usually end our little chats is by asking you to put a nice, big, pretty bow on it, just like you probably put a big bow on that busted hot water heater. (laughs)
Robert Brokamp: I wish. Oh, my goodness gracious, what an expensive endeavor that has been. Anyways, the most important thing really to keep in mind is that with all these things I’ve talked about, they really aren’t mutually exclusive. You can do a little bit of everything. Frankly, that’s what I do. Most of my portfolio is in index funds, but I do have some actively managed funds that I try to stay on top of. About 30% of my portfolio is in individual stocks. I even have some target date funds in my wife’s retirement account because I want that to be a set-it-and-forget-it type of fund or type of account. You don’t have to just choose one or the other. Over the past month, I’ve heard of Motley Fool members who were telling me that they decided they want to move more from individual stocks to index funds, partially because they want more diversification. I’ve heard from others we’re going the other direction. One is because he retired and he has more time to spend on his portfolio. I think the bottom line is try a few avenues that seem compelling to you, then let your interest, your available time, and most importantly, the results dictate how your investment strategy will evolve.
Alison Southwick: Happy investing.
Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool Editorial standards and are not approved by advertisers. The Motley Fool only picks products that it would personally recommend to friends like you. I’m Ricky Mulvey, thanks for listening. We will be back tomorrow.
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