Motley Fool Hidden Gems Investing - Rule Your Retirement

Episode Date: January 20, 2017

  Netflix hits a new high. Big Blue posts big profits. P&G raises guidance. We consider bidding on the iconic car from “Smokey & The Bandit” and share a few stocks on our radar. Plus, retirement expert Robert Brokamp talks investing trends for 2017 and the best way to monitor your mutual funds. Learn more about your ad choices. Visit megaphone.fm/adchoices

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It's the Motley Fool Money radio show. I'm Chris Hill, and joining me in studio this week from Million Dollar Portfolio, Jason Moser. From Supernova, David Kretzmann. And from Motley Fool Explorer, Simon Erickson. Good to see you, as always, gentlemen. Hello, Chris. We've got the latest on big tech, consumer products, transportation, and more. Retirement expert Robert Brokamp is our guest this week. And as always, we'll give you an inside look with the stocks on our radar. But we begin with entertainment. Shares of Netflix hitting a new all-time high after a fourth quarter report that included more new subscribers

than anyone, including Netflix, I might add, was projecting. David, the international front, they just crushed it. David Gardner. Oh, it was huge. Netflix knocked it out of the park this quarter. They were guiding for 5.2 million subscribers this quarter, adding 5.2 million new subscribers. They ended up adding more than 7 million for the quarter, including 5.1 million internationally. And I think the scary thing here, Netflix has about 94 million subscribers now. Reed Hastings, founder and CEO of Netflix, late last year, he said that his long-term goal, essentially, for Netflix is to have 20% of members in the U.S. and 80% internationally, which leaves the door open for Netflix to

potentially hit 250 million subscribers down the road. So, obviously, we're seeing Netflix get closer and closer to that 100 million subscriber mark, but management still has its eye on a lot of long-term growth. The Quarterly Report, Jason, got the headlines. But just below that, one of the other bits of news for Netflix this week, they locked up a deal with Jerry Seinfeld for a reported $100 million. They get two stand-up specials and, I think, 24 episodes of his web series Comedians in Cars Getting Coffee. It's gold, Jerry! Gold!

I really enjoy that show. But just for comparison's sake, Hulu paid $180 million, they got all nine seasons of his sitcom, Seinfeld, it feels like Hulu got the better deal. Netflix is spending a lot of money on content. They are, and they are unabashedly doing so. I think that's one of the things that, when we talk about all of the things that Netflix is doing really well, and they're doing a lot of things very well, it is not an investment that comes without risks. I think one of the risks is that you have to acknowledge in order for the business to continue to succeed, they're going to have to continue to invest heavily in new and compelling content. And that content is living a far shorter life

today than ever before. And that's okay. I mean, they can still do certainly very well with that. But in that letter to investors, they clearly noted, they will continue to fund working capital through the debt market. So, this is a company that's going to continue to issue debt. They will probably sell some more equity along the lines. And while that's okay as long as the subscriber base keeps growing. At some point, that subscriber base growth starts to slow down, and that's when you really need to pay attention to the growth in content costs. Because if you see those lines cross at some point, then it could be problematic for investors. But again, it's the nature of the business.

Yeah. And Chris, we've always heard that imitation is the sincerest form of flattery. You just see Amazon Prime and YouTube and Facebook and Apple. Everyone else is interested in this space, too, that Netflix essentially created a digital streaming. We just saw the BBC now saying they're going all-in for their new seasons to be online first, linear TV second. So, it's attracting a lot of competition, but unless you're the lead husky in the race, the view never changes. Yeah, Netflix is guiding for spending $6 billion on content this year, which is up from $5 billion in 2016. And part of that international strategy is producing content

in local countries, like Brazil, France, Mexico. And that content resonates with those local audiences in those countries, but the thing that really benefits Netflix is when those shows get popular around the world. And they're seeing a lot of success with those shows, so that's something we want to keep watching going forward. Yeah, we've taken some questions about David Einhorn's recent short thesis, and part of the crux of that was that the original content isn't really bringing any returns to the investment. And that really, I think, is a matter of perspective. I think perhaps he's being very literal in material profits today. That's not what they're trying to do.

I mean, what they're trying to do is to grow that subscriber base and build out that library. And if you look at it from that perspective, I'd say they're bringing wonderful returns. The question is, will it result in material profitability down the road? And that's yet to be determined. Fourth quarter profits for IBM came in higher than expected, but revenue falling for the 19th quarter in a row. Simon, the sales are falling, but big blue stock hitting a 52-week high on Friday. Well, and that's because the headline number is slightly deceiving. I mean,

the headline was, yes, it's the 19th quarter of less revenue than a year ago. It was down about 1%, like you said. But I think that more important is that no one ever got fired for working with IBM. This is a company that still has decade-long relationships with some of the largest corporations across the entire globe. Their strategy has always been to vertically integrate, find markets that they're really good at, work with those companies for a long time. And now, Chris, they're starting to bring a lot of that customer data to the cloud and interpreting it. This is something that IBM calls cognitive. We all remember it as Watson being on Jeopardy. But it's basically making sense of analytics so that customers in these

verticals can make more and more money and be more and more efficient. Their strategic imperatives, which largely cover what we just described there, were up 14%, now 41% of sales. So they're really moving the needle for this company. And Chris, I just like this play. I I mean, IBM is kind of thought of as a legacy, older kind of company, but they're selling at 13X earnings. That's pretty cheap. They're paying out three-quarters of their cash flow as dividends and share repurchases, but they've got some real growth initiatives. I kind of like this one at $170 a share. Yeah, I don't know if they meant to do this, but in hindsight, you can look at IBM taking

Watson, putting it on Jeopardy as a masterstroke. Because at the time, there were a lot of people who just sort of looked at that and thought, well, that's cute, but I'm not really sure what that means for the business. And now we can look back and say, well, that was actually a genius branding move. Absolutely. It added the credibility that IBM was wanting to establish. There's a lot of companies trying to crack this AI code right now, but to show that this really works and that they're looking at 30 billion images and 200 million patient records in the healthcare market alone, this is really going to pack a punch, I think. Procter & Gamble's second quarter profits came in higher than expected. The consumer goods giant also raised guidance

for the full fiscal year. Shares up 4% on Friday, Jason. The raising of guidance, that's with currency headwinds baked in. They're really getting it done at P&T. Yeah, my guy Johnny Cakes-Alva with the sports junkies is really happy about this one. Listen, it's interesting to look at how Procter & Gamble has performed over time. The more recent you stretch that chart, the more you see the challenges have become very apparent for this business. It's trailing the market by every measure for the last one, three, five years. And I think most of that has become more and more of a commodity business than perhaps before. The weight that its brands carried long ago, I don't think they carry

the same weight today. We're seeing more private label brands and just new brands in general as we move towards organic and more sustainable type of living. But I do challenge you to go ahead and make a list of the Procter & Gamble products in your house. My bet is it will take you more than one hand to do it. And I think that says something for the business. So, while I don't suspect there is going to be significant growth for these guys going forward, I do think there are ways for shareholders to win. I think it's imperative that management continue to repurchase shares continue to raise that dividend. And I think they're already doing a good job of ridding the portfolio of the laggers that really didn't offer much in the way of a future.

You look at the share count, it's down about 5% since 2012. That needs to get better. But again, I think it's a stalwart business. It's not going anywhere. It's better than 3% dividend yields. I think it's a worthwhile holding. It's a bedrock part of any long-term portfolio. That's the thing, when you look at a company of this size, it is the blue-chip dividend-paying stalwart. 4% in and of itself is not all that impressive, but for a dividend stock like this, it kind of is. You mentioned what they've done with their portfolio. That really has been one of the more interesting narratives in the consumer goods space over the last five to eight years, is how P&G has really shed the number of brands that they have.

I think it's also encouraging to see that they continue to find new ways to to saddle up with Amazon in order to utilize that physical warehouse space to help consumers get those products from point A to point B as quickly as possible. I mean, they are not just laying down in the face of this new e-commerce world. Fourth quarter profits for UnitedHealth Group rose nearly 60%. Shares down despite that segment, but the last year really has been a great run for this stock. Well, I'm not going to surprise anybody by saying this, Chris, but the U.S. healthcare system is pretty darn complex. We spend $3 trillion a year on healthcare. That's almost

$10,000 for every man, woman, and child in this country. And it's United's job to make sure that everybody that they cover with insurance has got really good healthcare, but also bring down the cost of that through the entire system. So they want to be efficient and effective at the lowest cost. So not easy to do. Huge challenge for a company like this. But United Healthcare is also very, very good at it. They added 2 million new members this past year. They got double-digit growth in each of their product category lines. And they're processing 600 billion transactions digitally every single year. So, they've got a ton of data. They know healthcare better than anyone else in this country does. And now, it's going to be a matter of how do you connect the

dots between pharmaceutical, clinical, and care delivery to bring down the cost of the overall system while still going after profitable growth as a public company that's got shareholders. This is the biggest health insurance company in America. What should investors be watching to make sense of how they're actually doing? Well, you know, there's a bunch of different product lines, and it's very difficult to interpret everything. But something that is very important for investors to keep an eye on is the medical loss ratio. This is something that United actually calls their four-year care ratio. But it's basically the percentage of the total premiums that they're collecting that they spend on claims and healthcare costs. So you want the

number to be as low as possible, ideally below 85%. UnitedHealth's medical loss ratio for last year was 81.2%. That's slightly up from the year before that, but that's still very, very good. I think that's a metric that investors should watch going forward. Coming up, we don't have planes, but we do have trains and automobiles. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. CSX is one of the biggest rail transport companies in America, shares up more than 20% on Thursday on reports of an activist investor looking to come on board. Jason, I took the pun before Simon could use it. What is the story here? This is a really big move for a company this size.

It is a big move. And it looks like the headline pop on Thursday gave a little bit back on Friday, as these things are wont to do. And I think the enthusiasm is based on the fact that Harrison was behind substantial operational improvements at Canadian Pacific. And so, So it sounds like he is going to retire early from Canadian Pacific and has this angle of joining up with activist investors to gain a senior position with CSX. Now, it could be argued, and I think quite effectively, that CSX has not done as great a job in bringing the improvements to its gross margin over the past few years down the bottom line. I mean, we've definitely seen a gap there between revenue and operating

income and profit. And I think that whenever you have rumor that perhaps a proven operator could come in there and recognize the problems and fix them, we talk about the competitive nature of railways and how attractive they are often. You can't go out there and build more railroads. So, it is a very moaty type of business, and if you can find an opportunity there to wring out some extra profitability, which this could actually do, I think that's where the enthusiasm comes in from investors. Yeah, Simon, Hunter Harrison, not exactly a household name, but if you study the rail industry at all, he is well-known.

Well, I was just hoping, Chris, that the company finds a way to get back on track. Oh, man! I knew I shouldn't have gone to you. Steve Broido weighing in from the other side of the glass. Strong first quarter results for Skyworks Solutions. Shares up 12% on Friday and hitting a new all-time high. David, you saw these guys when you were out in Las Vegas for CES, right? Yeah, this is one of the companies we met with, and Skyworks is not a household name, I don't think, but this is a company that I think is in a good position to benefit as the world becomes increasingly mobile and connected. So, a high-level way to look at it is, Skyworks is one

of the semiconductor companies that enables devices to connect to a cellular network, to Wi-Fi, to Bluetooth, you name it. It enables mobile connectivity. And the company reported good the results. Revenue and earnings were slightly down, but ahead of management's guidance, and they're guiding for sales growth of 8% next quarter. What looks really good with Skyworks is its cash position. For this quarter, they produced a record amount of cash flow, about $500 million for the quarter. Right now, they have $1.4 billion in cash, no debt. They just authorized a $0.5 billion buyback, so returning more cash to shareholders. As we go forward, and we need faster data and lower lag time, whether

we're talking about 4G LTE connection or 5G connection, Skyworks should benefit, especially as we're talking about the Internet of Things, Wi-Fi speakers, connected cars, virtual reality, wearable technology. I think Skyworks has a lot of room to grow in the coming years. Our email address is radioatfool.com, from Mike Connors in San Francisco, who writes, I'm worried about the chances of a general stock market fall, periodic corrections being only one of the potential reasons. As a mostly long-term investor, I'm not interested in selling many of my foolish, rule-breaking holdings, but I am seeking something that will benefit from a temporary downturn. Is there a foolish way to achieve this type of

insurance? Well, Simon, before I turn it over to you, let me just put Mike's mind at ease. there's a 100% chance of a general stock market fall. I can't say when it is, I just know there's a 100% chance it's going to happen. You sound awful cocky over there, Chris. But in terms of his question, what is the insurance against a market downfall? Yeah, well, Mike, when he says insurance, it's almost referring to an option play. There are a couple options you could do for that. One would be just to buy a put on the market index, you know, buy a put against the S&P 500, where if the market falls, you would profit from

that drop. You have to pay for that upfront. That costs you money for the premium. And if you wanted to counteract that cost, you could set up what's called a bear put spread, where you would also sell a lower put at a lower price than that to counteract the upfront premium. But again, option strategies are something that we have. We have two services, Motley Fool Pro and Motley Fool Options, that I would highly encourage to at least take a look at, because they are very complex. The devil's in the details of a lot of the pricing of those. And you definitely, before you start playing with options, want to know what you're getting into for the upside, but also the downside as well. Not for beginners.

Correct. Yeah, options are definitely more advanced. And I think for a lot of people, what I do in my portfolio is just have a cash position on the side. So, if you're losing sleep at night worrying about a market downturn, put 5%, 10%, 15% of your portfolio in cash, something that serves as an insurance policy for you to invest when we do have one of those inevitable market downturns. I second the cash emotion. That's just a great way to do it. Don't necessarily have to sell, just start building up a little bit of a cash war chest there. And if you've been keeping a watch list of stocks, all of a sudden one goes on sale,

you can take advantage. Yeah, we talk a lot about the lack of returns on that cash, but you really have to look at it from the perspective that the return is the liquidity, is the opportunity. That is the return. It just takes a little bit longer to realize it. Guys, why do we invest? We invest to secure a better life for our families, to have financial independence. We invest so that we can afford the life we want, the things we want. And this week, something became available that I know Jason Moser wants. A 1978 black Trans-Am driven by Burt Reynolds and modeled after the car in the iconic movie, Smokey and the

Bandit. It is up for auction this weekend, Jason Moser. I know you are tempted. I know you're tempted to head on out to this auction and put in a bid. Yeah, and I want to picture the quizzical look from David Kretzmann here, who's like, smoking the what? Just because it reminds me exactly how old I am. But, one of the funnier movies I have ever seen. Now, to be very clear, I am not the biggest car guy in the world, so you're not going to catch me plunking down any money for this. If I had the opportunity to get in it for a photograph, or to take a spin, I think I'd be hard-pressed to turn that one down, but yeah, this one brought back a lot of memories.

Simon, anything from the world of movie memorabilia you'd like to put in a bid on? Chris, I would make a bid for the Holy Hand Grenade of Antioch, from Monty Python and the Holy Grail. David? I would go with the TARS robot from Interstellar. Wow. I like that. That's more recent.

That's a really cool movie. I would like having that robot in my house. I think that, in a nutshell, sort of displays the age spread between ... I'm way too young. I know what I need to watch this weekend. People like you and me, Jason, and David. I know what I need to watch this weekend. Let's go to our man behind the glass, Steve Broido.

Steve, you're a Smoking and the Bandit fan, aren't you? Well, it is a good-looking car. I will say that. I saw a photo of it. You sent a link, and it's a very handsome car. But you're not putting in a bid? I don't think so. Anything from the world of movies that you would be tempted to put in a bid on?

I would love a lightsaber from any of the original films. That would be great. What if the boat from the classic comedy film Captain Ron was on? Then I would be definitively interested. All right. David Kretzmann, Jason Moser, Simon Erickson. Guys, we will see you a little bit later in the show. Up next, Robert Brokamp is going to help you rule your retirement. Stay right here. This is Motley Fool. All right. Before we get to Robert Brokamp, New Year's resolution time and two of the most popular are taking better care of your money

and getting healthier. And you can do both those things with Green Chef. Their USDA certified organic meal kits make it easy to cook healthy and feel great about where your food comes from. They deliver everything you need to cook amazing dinners. They deliver right to your door organic, non-GMO ingredients, and they're pre-chopped and pre-measured, which make it really, really easy to cook a great meal. They've also got step-by-step recipe instructions that have photos. I don't know about you, but when I cook something, nothing is more annoying or frustrating to me than a cookbook or someone who's laid out a recipe that's not in any sort of logical, helpful order, Green Chef totally takes care of all of that.

You can choose the plan that's right for you. You've got options like vegan, paleo, gluten-free. There's no shopping, no planning, no commitment. You can switch between menus. You can skip weeks. You can cancel whenever you want. You can also impress the heck out of someone with this. I promise you, I've impressed people in my home with my cooking mojo with Green Chef, and you can too. So, go to greenchef.com slash fool, get $50 off today, and make Green Chef the resolution that sticks. Welcome back to Motley Fool Money. I'm Chris Hill. Robert Brokamp is a certified financial planner and the Motley Fool's resident expert on retirement, and he joins me in studio now. Thanks for being here. Always a pleasure, Chris.

I want to start 2017 with a quick look back at 2016 for just a minute. You'd written something recently about some of the key themes that determined the investment performance in 2016, things like commodities making a comeback, value stocks being back in vogue. And for the fourth year in a row, which is pretty amazing to think about, the U.S. stock market outperformed the rest of the world as a group. Right. First, did any of these surprise you? Because the commodities one, when you look at the performance of commodities in 2016, that was kind of a surprise to me.

Sort of, except my basic opinion, I'm an asset allocator, so I invest in different types of assets all over the world, small, large, mid-value growth, based on the fact that these take turns being the leaders. I call it the hokey-pokey, some point it's in, times it's out. I read a Morningstar article called it leapfrogging. You could call it reversion to the mean. But basically, things take turns doing well, and then something else takes over. I think we all agree that hokey-pokey is better than reversion to the mean. That's why I choose it. Some of these things have been going on for a while. Commodities had a horrible run. It had to turn around

at some point. Growth was beating value for several years pretty much in a row. That had to turn around. We all know that historically, smaller stocks beat large stocks, but up until last year, large stocks were winning. So, I knew at some point, a lot of this was going to turn around. To me, really, the big surprise is that U.S. stocks keep outperforming international stocks as a group, because right now, international stocks are so much cheaper. I've been saying that for a couple of years now, but still, U.S. stocks keep doing well. And so, I think there are a couple of ways you can go as an investor, or certainly be tempted to go, and one is, well, look, on the international side, that can't continue

ad infinitum. But it's also sort of tempting to go, well, wait a minute, if value stocks are back in vogue, maybe they're going to be in vogue for a little while longer. So, I guess my question is, these were some of the key themes that determined investment performance in 2016. Should we expect any or all of them to continue in 2017? I never like to make predictions based on one year, but generally speaking, these types of trends do play out over a course of a few to several years. The best way to take advantage of this is just to rebalance your portfolio. If you've been doing this type of thing for a while, the growth allocation of your portfolio has grown, the U.S. allocation

has grown, the large-cap allocation has grown. You rebalance, so you sell some of that, but not all of it, and you buy some of these other things that look to maybe take over the leadership for a little bit? President Trump, freshly in office, and a couple of things I want to get to. And the first is this idea of corporate taxes being cut, because there are always a lot of predictions anytime a new administration enters the White House about, well, this industry is going to do well, that one's going to be hampered, etc. This is one of those situations, I think, where there is a decent amount of consensus that if corporate tax rates get cut, stocks are going to benefit, investors in stocks will benefit. And I'm wondering,

with your asset allocator hat firmly on your head, there are a lot of people who just think in terms of stocks and bonds, and I have my allocations. Corporate tax is being cut. Is that going to be a big enough benefit for stocks that we should seriously factor that into our asset allocation and potentially even change course once it actually happens. Yeah. I personally wouldn't, though I understand the argument. First of all, there's some debate about how high corporate taxes really are. There's the stated rate of 35%, But then you look at how much corporations actually pay. And I've seen various studies that say that on average, actually, corporations pay maybe $12, $14, maybe close to $30, depending on who you're asking.

But depending on if that's really the corporate tax rate, how much of that is actually going to get cut, number one. And number two, then what are the companies going to do with that money? Some of them are just going to let it sit in cash and not really do that much with it. And then you look at other things that are going on related to what I just said. U.S. stocks are not cheap. And if there's any indication of future returns, not in the next year, but over the next 7 to 10 years, it is valuation. Right now, the stock market is not priced for outstanding returns. So, I would still remain cautious.

The flip side of that is, if you're not in stocks, where are you going to go? bonds look just as unattractive right now because interest rates have come up and it looks like they're now going to start gradually moving back to something close to what we would call normal. That's not good for bonds. The only thing that really leaves you with then is cash, meaning you might earn a little bit more in your bank account, but it's still nothing exciting. Isn't that a little bit of what has driven the U.S. stock market's performance over the last four years, this idea that there are institutional managers outside the U.S. who look around the world and just think, well, to your question, where am I going to go? Where am I going to put

my money? Well, right now, the U.S., as expensive as the stock market's getting, it's better than my other options. To a certain degree. It certainly is, if you look at interest rates, for example. Our interest rates are low. In other developed countries, they're even lower, or in some cases, with some government debt, it's actually negative, which is a mind-blowing concept, a negative interest rate. So, that is one reason why some money has come into the U.S. As for coming into the U.S. stock market, I don't know if that's a reason. I don't know how many international folks are coming over here to invest in the U.S. stock market, because I think they all recognize that it's also expensive. Even if you just look at

dividend yields. If you're a dividend investor, it is so much easier to find higher-yielding investments in international stocks than it is in U.S. stocks. When it comes to President Trump, is there a retirement story or an investing story that you find yourself curious about over the next few years? I will be most curious about what happens to the entitlements, Social Security and Medicare. Most retirees rely on Social Security for the majority of their income. like 20 percent of retirees rely almost exclusively on Social Security. What's going to happen to that? Last year, there was a bill proposed by a congressman, a Republican congressman, that is

suggesting that we should raise the age for Social Security a couple of years. But that wasn't discussed in the campaign, so I'll be very curious to see what happens to that. And then there's Medicare. We hear a lot about Obamacare and the Affordable Care Act. Medicare is a huge deal. It's for retirees, it's for disabled folks, and it is in worse shape than Social Security, yet nobody's talking about how to fix it. So, I'll be very curious to see what happens to those programs. At The Motley Fool, we like to focus on stocks, that's our wheelhouse, but let's face it, a lot of people are invested primarily through mutual funds. A lot of them actively

managed. I'm curious, for anyone who has actively managed funds, what is the best way to monitor those? You're right, a lot of people are invested in actively managed funds, partially because they choose to be and they don't pick individual stocks, partially because they have no choice. Most of our retirement savings are in 401 s and most 401 s are popular with mutual funds, so you're stuck with them. The first thing to do, of course, is to look at the bottom line, the performance. The key there is to make sure you're making apples-to-apples comparisons. If you are going to look at, for example, a small-cap value fund, you want to see how it did compared to other small-cap

value funds. You can actually do that pretty easily on Morningstar.com. You just put in the ticker, click on the performance tab, you scroll down, you see rank and category. If it says 25, that means it is in the top 25% of funds, which is pretty good. You want to give it at least three to five years. A few years ago, Jack Bogle, the founder of Vanguard, was here at the Motley Fool giving a speech about picking actively managed funds. And he said, there are some folks who do a good job of it. But if you're going to go with actively managed funds, you have to expect that one out of every three years is not going to go well for you. So, you do have to give an active manager enough time, three to five years, to make a good judgment.

Another thing you should also look at is, if you have index fund options, either in your 401k or in your brokerage account and find a comparable index fund. So, let's say you have that actively managed small cap value fund. Look at a small cap value index fund. If the active fund isn't beating the index fund, why bother? Just go ahead and buy the index fund. Let's go back to the managers for a second because, as you said, there are some really good managers out there. But does tenure play a role in that? Is that the sort of thing where you want to find out, well, okay, I'm going to give them a three- to five-year time period to see how they've done. But at some point, maybe they leave or they take their team with them.

I mean, that seems like that is a slight risk as well. Right. We all know that the vast majority of actively managed funds do not beat a comparable index fund. So, you have to stay on top of this. And if your actively managed fund is actually beating an index fund, it's because of that manager. It's because of what that team is doing. If they leave that fund, then they might be taking the record with them. It is possible that the company has sort of an institutional knowledge and a culture that instills a certain type of method so that whoever's running the fund, you know that you can expect similar results. One example is Dodge & Cox, which is one of the oldest mutual fund companies. It's been around

since, I think, 1931. And they have a committee approach to managing the fund. So, if few people leave a fund, you know that there's still a long history of managing that fund in a certain way. And you can be pretty confident that things are going to go pretty much like they have in the past. Is there any data on size in terms of the mutual fund companies themselves? I'm just wondering, is this one of those situations where, as a general rule of thumb, bigger is always better. Or, I could see someone making a case for, actually, you want to go with a smaller company because they're going to have a more personal approach to it. You definitely would want to care more. In my opinion, I think it's more important

to pay attention to the size of the fund itself. One of the problems mutual fund managers have, one of the challenges, is that they're not just picking an investment and sticking with it, they have to deal with the daily cash flow of people sending money to them or asking for money back, and they have to factor that in to other buying. If the market were to tank tomorrow, you and I could decide, we're just going to hold on to our investments. But mutual fund managers can't do that, because a bunch of people are going to say, I want my money, and they're forced to sell when they don't want to. So, you want a fund that's small, relatively nimble, and that doesn't have ... what some studies have indicated

is when a fund does well and becomes very popular, they get a flood of money coming in and they don't know what to do with it, because they've already invested in their best ideas. So, that's something I think is more important to pay attention to. I was going to say, yeah, and we've also talked to fund managers who have had that situation. Going back to what we just talked about, that the market in the U.S. going up over the last four years, outperforming other markets, and fund managers dealing with these inflows, and they say, I'm a value investor, and there are no values to be found. Right, right. And then, so they can sit on cash, but then people will say, well, why

am I paying you 1% a year to sit on cash and not do anything with that money? Is there any new data in terms of the so-called magic number, in terms of what does it cost to be retired and how much should I be saving and what should my target be? Or is it all just about who you are as an individual? It really is very individualized because it depends so much on all kinds of other factors like other resources. I mean, if you have a defined benefit pension, that traditional pension, you are in a much better shape than someone who does not have that. That said, as a rough guideline, you would often hear people say that you should not retire until you have eight to 10 times your income saved. So,

you know, if you make $100,000 a year, you should have $800,000 to a million. Now that figure has has jumped up to about 10 to 12, partially because of low interest rates on bonds and high valuations on stocks. Future returns don't look quite as rosy as they may have in the past. So, you should have more money socked away before you retire. And I'll add to that also the belief that today's retirees are going to live longer than yesterday's retirees. Something you and I talk about from time to time, health. And just the fact that a lot of people are living longer and, in some cases, may find themselves in a situation where they're

in danger of outliving their money. Right. I would say, one rule of thumb that people have been questioning a lot recently is that, you may have heard the classic 4% rule. You withdraw 4% from your portfolio the first year of retirement, and then you adjust that annually for inflation. The belief was that you should have your retirement income adjust for inflation every year, so that it goes up a little bit every year. But what we're seeing more and more of is that actually isn't what happens. Retirees, actually, they retire. They might spend a lot of money because now they have all that freedom. They go on vacation and stuff like that. But gradually,

their spending goes down because the mortgage gets paid off. As we get older, we don't update our wardrobes as much. We don't update our furniture as much. We get to a point where we can't travel as much as we used to. Sadly, if you're a married couple, if one passes away, your expenses drop by about 30%. So, actually, for most retirees, their expenses go down. Why is that important? Well, if you assume that, instead, your expenses are going to go up in retirement, and you put that into a calculator, for example, it's going to overestimate how much you need before you retire by 10% to 20%. It's telling people they need to save more than perhaps they actually have to.

If you want to hear more from Robert Brokamp, good news, you can. You can check out Motley Fool Answers, the weekly podcast from The Motley Fool. You can find it on iTunes, on Stitcher, on The Motley Fool's Podcast Center. Check out Motley Fool Answers. All kinds of great information on basic money topics every single week from Robert and his co-host, Alison Southwick. Thanks for being here. Always a pleasure. Coming up next, we'll give you an inside look at the stocks on our radar. This is Motley Fool Money.

As always, people on the program may have interest 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. Welcome back to Motley Fool Money. Chris Hill here in studio once again with Jason Moser, David Kretzmann, and Simon Erickson. You can check out past episodes of Motley Fool Money and all of our podcasts by going to podcast.fool.com. Also, there in our podcast center, you can test drive our flagship service, Motley Fool Stock Advisor. On Friday, the brand new issue of Motley Fool Stock Advisor came out with two new stock recommendations from David and Tom Gardner. You also get Stock Advisor's

best buys now, and a whole lot more. So, check it out. Go to the podcast center, and just scroll to the bottom of the page. That's podcast.fool.com. Time to get to the stocks on our radar, and Steve Broido will come in from the other side of the glass to hit you with a question. Simon Erickson, you're up first. What are you looking at? Chris, I am looking at Activision Blizzard, ticker ATVI. This was the winner of our December Best Buys Now, Explorer 2 mission. It's been on our radar for a little while now. This is a company that makes video games. One of the largest video game companies in the entire world. They just launched this past year a title called Overwatch, which

already has 20 million members, which doubled Blizzard's year-over-year revenue. Even more interesting to me, Chris, 86% of sales this last quarter came from digital, which means as you're seeing this increase in esports and more than 200 million people globally watching organized video game competitions, I think that spells really good news for Activision going forward. Steve, question about Activision Blizzard? What platform are you the most bullish on today? You know, they've got a lot of franchises that are mobile versus... Mobile versus PS4 or Xbox. Which platform do I want to be on?

Yeah, I mean, I think that mobile is really big with Candy Crush kind of taking the world by storm a couple years ago. But overall, it doesn't really matter to me, Steve. I mean, it's the franchises that people are still using on mobile phones, on personal computers, on Xbox, whatever else it is. Activision holds all those franchises that they're going to continue to monetize for years. Jason Moser, what are you looking at? Yeah, TripAdvisor had a horrible 2016, of course. Ticker is T-R-I-P. And I think investors have every right to be frustrated with the stock. Revenue growth came to a screeching halt, but let's remember that was by design as the company continues

to roll out this instant booking platform, which is now done. Just got back from Universal Orlando, had a great time, and I attribute that in part to TripAdvisor and finding a great hotel, and I actually booked it on TripAdvisor as well. This is, in fact, the most popular travel website in the United States. They've cleared the biggest hurdles in acquiring traffic by building a killer platform and actually building out the instant booking offering. Now, it's just re-educating the consumer. That's a matter of when, not if. And I think today's stock price rewards patient investors. Steve?

How should consumers differentiate between the place that says, this is the best hotel in the world, I almost died at this hotel, it's horrible? How do I make sense of that? Is it just cumulatively what I'm looking at? Because it's all over the map with these reviews. Well, it is all over the map, you're right. And I think, generally speaking, filtering for the ones that have the highest ratings, but it's also interesting to note the TripAdvisor is rolling out additional tools for hotels and restaurants and whatnot to really highlight the best reviews to get that stuff up to the forefront for travelers

like yourselves. Do you? David Kretzmann. Well, the federal government recently wrapped up an investigation into Tesla Motors and its autopilot feature, and found that since autopilot was essentially installed on its vehicles, accidents with Tesla vehicles went down by 40%. So, I think that's interesting. put it on my radar. This is a big year for Tesla with the Model 3 production. It's slated to start. Solar roof tiles with SolarCity, Gigafactory production, you name it. Steve? What year does my car drive me to work?

2040. Alright, Jason Moser, David Kretzmann, Simon Erickson. Guys, thanks for being here. Thanks, Chris. That's going to do it for this week's show. Our engineer is Steve Broido, our producer is Mac Greer. I'm Chris Hill, and we'll see you next week.