Motley Fool Money - Motley Fool Money: 07 01 2011

Episode Date: July 1, 2011

Our mid-year review! We’ve got the big stories from the 1st half of 2011 and what lies ahead for investors in the 2nd half. We’ve got business and non-business predictions, and tips to help you declare your financial independence. Plus, sports owner & technology mogul Ted Leonsis on the business of happiness and the one company he thinks has the “perfect” business model. Learn more about your ad choices. Visit megaphone.fm/adchoices

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from income investor James Early, and from Motley Fool Hidden Gems, Charlie Travers. Guys, happy Independence Day weekend. Same to you, Chris. It is our mid-year review special. We'll be looking at the big investing stories of 2011 and make some reckless predictions for the second half of the year. Retirement expert, Robert Brokamp, will stop by with some tips to help you declare your financial independence. Plus, as always, we'll give you an inside look at the stocks on our radar. But guys, when you look back at the first half of

2011, let's just start with the big story for you as an investor. Ron Gross, I turn to you first. What's the big story for the first half of 2011? For me, the big news was the unrest in North Africa and the Middle East. Significant loss of life. We had regime change. Easy for me to say. We had military involvement, and the economic and business impact was the havoc it wreaked with oil prices, which we're still dealing with even now and for the rest of the year.

What is the net effect on U.S. investors? Well, rising oil prices certainly could be good for some oil companies. But for the rest of the non-oil world, it has two negative effects. The first is that increasing costs for all different types of businesses impact margins, and that leads to decreased earnings. From a consumer perspective, it leads to higher gas prices, which I think a lot of us are feeling at the pump, and that decreases consumer spending, which has implications throughout the economy. James Early, your story for the first half of 2011.

Chris, I was going to say Japan, for the bigness of the story, I mean, obviously, it's a huge news situation, but they've really done a good job of rebounding. So economically, I might go with Greece and the disruption there, Greece and the EU. This affects U.S. investors. It affects U.S. companies and affects the price of Greek yogurt. I mean, this is something that is really going to potentially send big ripples throughout the global economy. And as we've talked about on this show and on our daily podcast, obviously, you know, Greece is the country of the moment where the focus is for investors. but there are a lot of other countries in the EU that just seem like they're sort of on the precipice

of falling into that type of situation. What are like maybe two or three other countries in the EU that you look at that you're watching? Oh, sure, yes. Spain, Portugal, Ireland, Italy. I mean, all these are sort of the have-nots are coming to find out who partnered with the haves and they were able to borrow beyond their means. And now, you know, Greece could be unraveling of the string. We thought we saw this happen a while ago and now it's happening again. I mean, economics are still there. So to me, that's why it's so big. Charlie Travers, your story for the first half of 2011? Sure, Chris, to bring this back home, let's talk about the IPO window opening up this year.

So there's a lot of exciting companies that came public. We had LinkedIn, Pandora, Nielsen Holdings, you know, the popular TV ratings kind of company, but they do other stuff as well. And my personal favorite of the group would be Zipcar just because I am such a happy customer. We did talk about that. We have. We have. It seems like, though, that the companies that are IPOing that are getting the headlines are reminding a lot of us in this room and a lot of people on Wall Street of the late 90s. Particularly when you talk about LinkedIn, Pandora, it really does seem like we're seeing this whole internet bubble playing all over again.

Companies of dubious profitability, taking the money and running. Is that kind of what you're getting at? I mean, Ron's nodding. Yeah, I mean, those that are advertising-based, as I've just, you know, that are advertising-based, As I've said before, every company can't be advertising pays. There's not enough advertising. So if you can find a company that has a revenue model that doesn't rely on advertising, maybe that's a little bit more interesting than some of the others. Besides being a happy customer, what is it about Zipcar's business model that you like?

They are first mover and have the critical landmarks locked down as far as getting cars in the critical spots where people want them. But isn't that, I don't know, I mean, I don't use the service at all. It just seems like a, a business is pretty easily copied. You would think so, but it's very capital intensive, and I think there's a network effect where they get a lot of people in, and it's hard to catch up with them. You get the Mini Cooper, right? Is that what you like?

You can get cars of all kinds. I'm a big guy. The Mini Cooper would not really work for me. It's bigger than you think inside. There is. Yeah, my sister has one. It's a nice car, but I like the Volvo. Oh, Van? I don't know.

The Zipcar had that. And they got Beamers, too. Wow. Obviously, this is audio, not video, but Charlie's a big guy. Do you even fit into a Mini Cooper, Charlie? Like James said, there's surprisingly more headroom than you would think. It would have to be a lot more than I think, because those things look tiny. What surprised you the most?

Obviously, there's the old maxim that the market hates uncertainty. What was one story that happened this year that as an investor really kind of was a curveball for you? Ron, I'll start with you again. I'm going to go to what James mentioned, which was the earthquake and follow. blowing tsunami in Japan. Really? Ami, you pronounce it so well. Thank you. Yes. I learned that from George DeKay on the Howard Stern Show. He taught everyone how to say it properly. So that was big. We were kind of riveted to the computers, to the TV

for a while there. Yeah, but you can't really predict earthquakes. No, that's why I was surprising. Oh, come on. I mean, $300 billion of economic loss here, loss of life, business interruption, supply chain interruption, reverberated around the world. It wasn't just isolated to Japan. so unexpected and very impactful. James, what surprised you? Chris, I'm going back to Ron's big answer.

He went to mine and I'm going to his, which was the Middle East unrest. And to me, the assassination of Osama bin Laden or the killing of bin Laden was very surprising, but it was more surprising that Disney would have the nerve to try to trademark seal team six within 24 hours or whatever it was after the event. I mean, that's just goes. What kind of kids movie are they going to make about that topic? That's the question. and they later backed back down after public scrutiny. Yeah, they did withdraw the patent application.

But it was surprising nonetheless. That's, I mean, that's really some stones, isn't it? It takes a lot of... Disney, too. A lot of gall to just say, oh, yeah, we're going to market that. We're going to make an action movie. Fame. The U.S. taxpayer funded these guys, and it is McNoble, and then Disney's going to try to capitalize on it.

That was pretty surprising. All right, Charlie. I'm actually surprised these other two guys didn't mention the whole David Sokol thing with Berkshire Hathaway and basically front-running and acquisition. That's a good one. Your story is that you were surprised that we didn't. That was my surprise. I was surprised Ron and James didn't name this event.

Buffett's a long time lieutenant sort of being ousted. Unethical behavior, yeah. And just because of Warren Buffett being Mr. Integrity and this company being on a pedestal for decades, that it would happen there of all places is the shocker. We talked recently about Berkshire Hathaway stock. It's hovering in the neighborhood of a 52-week low. Sokol's resignation, at least in some quarters, was given credit or blame for part of that. Stepping back from his resignation, and

Ron, I'll just direct this to you because you're a Berkshire guy. What do you think when you look at the stock? Is this for people who are thinking about Berkshire Hathaway, is now a time to get in? I think the answer is definitely yes. I think the stock is definitely undervalued, and it's not regularly this cheap. It's definitely opportunity. I am one of the guys who was worried about the Buffett premium, and the day he steps down or God forbid something happens, what happens. I'm kind of backing off that a little bit. I think this company is going to be okay. It's a collection of really valuable assets.

Charlie, you agree with that? 100%. This stock looks cheap. After they split the shares on the Bs down, I think it was a 50-to-1 split, you know, there's really no excuse for anybody not to be able to own a little bit of Berkshire. How much does it pain you to agree with Ron? I think you'll probably take me for some Jimmy Johns later. There you go. All right, coming up, we will dip into the fool mailbag and engage in wild speculation.

This is Motley Fool money. Hey, if you want access to hundreds of articles analyzing the stocks you're interested in, then you've got to get the Motley Fool's new mobile app. You can download it for free by going to app.fool.com. You get stock market commentary from the Motley Fool's team of senior analysts, and you get Motley Fool money on our daily podcast. Take us with you for crying out loud. Just go to app.com. Chris Hill here in the studio with Charlie Travers, James Early, and Ron Gross. It is our mid-year special. And, guys, before we look ahead to the rest of 2011, We've gotten a lot of really great email lately.

You can always email us, Radio at Fool.com. Here's one from Eric Marshall in Illinois. He writes, guys, your show is great, informative, entertaining, insightful, and funny as hell. It's great to hear your thoughts about stocks that are good values or have good potential. But how do you decide when it's time to sell? We're always being told, don't panic, don't bail on a downtick. So what's the psychology? When you're getting out of something, do you always know that you're moving into

something better, or is it just time to sell and the buy decision is a separate thing? That's one of the all-time, eternal questions for investors. Ron, how do you decide when to sell a stock? For me, being a self-confessed valuation guy, almost everything boils down to valuation, whether it's strategic or management change, all those things feed into what you think a company is worth. The other reason I would sell is based on morals or ethics. If a company's doing something, regardless of it's cheap or not, that you just really don't agree with, and you don't want to be an owner of that company, then there's absolutely nothing wrong with getting rid of it.

James? Ron, how would you be something other than a self-confessed valuation guy? With someone else confess, if you have to buy definition, confess to yourself? I've been accused of focusing odd value. But, yes. James, how do you decide when to sell? A doctor that I had, Chris, would tell me about a study where most investors, when they sold the stock to buy something else, the stock that they bought, later on did worse.

and people sell too much, too frequently in general. For me, it's just about writing down reasons to buy a stock in the first place and keeping yourself honest and selling one of those reasons are no longer true. It's very easy to want to hold through business model changes through things like that. But if your thesis changes, odds are it's time to get out. Charlie? I would agree with everything these guys said, but I would also, you know, maybe you have a better place for your money. A lot of people have finite funds to work with. And, you know, something you've held for five, six, seven years, which tends to be my personal holding period, you know, you find something new.

And, you know, it's sometimes just better to swap out. I do agree with James that often the new companies don't do as well. So that's why you have to be really careful and not trade too frequently. What's the last stock you sold, and why did you sell it? The last stock I personally sold was Leg Mason. And basically it reached kind of the price where we thought it was worth in the mid-30s. So, I mean, to James' point about having... the thesis, writing it down. It met your criteria.

And you're like, that's it time to go. Yeah, I bought it in the teens, sold it in the 30s. Time to go. No regrets. All right. Great question. Again, you can always drop us an email, Radio at Fool.com. All right, it's our mid-year special, guys. We've spent a little time looking back at the first half of 2011. Looking forward now for the rest of the year, what is one big question that you have as an investor? It can be about a company. It can be about an industry. Ron Gross, I'll turn to you first. I'm sorry to give a board.

answer, but it's the truth. I'm really going to be watching economic activity, unemployment, inflation, GDP growth. That's boring. Yeah, I'm sorry. But you know what? I am in the camp. I am concerned about the U.S. economy. Our growth is pretty anemic now. I'm certainly hoping it doesn't go negative. And that's really probably the one thing that I'll be watching most closely. So for all the talk that we had in the last segment about what's going on with oil prices in northern Africa, what's going on in the EU. you're just focused right here at home and our own indicators for the rest of the year. I know I'm not blind to the rest of the time.

But yes, that's your primary focus. It is definitely my primary focus. James? I'm just wondering what happens with the EU. Does it unravel now with Greece, with Spain, Portugal, with the other guys just pulling France and Germany apart or not? It's just a good test of socialism. Wow. Just like that?

Yeah, yeah. How likely is it that, I mean, and this is something that, we've talked about in the past, but we haven't talked about it recently. How likely is it that the euro just goes away as a currency? It's lasted longer than I thought. The Europeans are more committed to socialism than I thought. Europeans have breaking points like everybody else. So it's some, you know, it might not be within the next year, but, you know, I would say there's a 50% chance the next couple of years, even up to five years that it goes away. And that's a high chance. Ron, what do you think? Five years from now, is the euro still around? So I'm not an expert,

But the things I've read on this, I think the argument saying the Euro is going away is more compelling than the articles that say it'll be around for a while. So I think it goes. It's a stronger case. I'd say it's unanimous. Charlie, what's your question for the rest of 2011? I'd like to know when investors wake up and stop chasing these small-cap stocks to nosebleed multiples and see these great values on blue chip companies that have been staring them in the face for months. I'm talking about names like Coke, Walmart, Microsoft, Abbott Labs. These are all excellent dividend payers that can be the foundation of your portfolio. And, you know, people have been neglecting them. Ron, you're nodding.

I think I completely agree with that. Google falls into that camp. Absolutely. Wait, wait, wait. Google has fallen into the value case? It really has. I completely agree with Charlie. That's a great one.

Hold on a second. As a Microsoft shareholder, I'm well acquainted with how shares are cheap because they really haven't gone anywhere. But Google, how is Google? The stock has come back. Company throws off a ton of cash flow, and the stock has pulled back. All right. We will wrap up this portion of our mid-year review with predictions for the rest of the year, and I want two predictions. I want a business prediction and a non-business prediction. Ron, you're up first. Are you going to play this back six months from now and hold us to these predictions?

Absolutely. Great. I think third and fourth quarter earnings are going to come in worse than expected. Sorry to be a downer. Wow, you are Mr. Downer! I think those pundits on those news channels that predict the over- overall earnings of the SMP 500 are going to have to bring their earnings estimates down. And that's unfortunate, but I actually think that's the case.

Okay. And a non-business prediction? I think the NFL labor dispute will work itself out, and we will have a full season of NFL football. God, I hope you're right on the second one and wrong on the first one. James Early. I predict that we will see the limits of this IPO-mania tested for social media. I think that's a good thing. You know, something will start to unravel just too many cheesy IPOs. And for non-business, I'm going to predict there's going to be some kind of cataclysm or major disaster, you know, weather-wise that's going to befall the world. That seems like a...

It's uplifting. That seems both... I'm just being honest, guys. That's what we've seen lately. Wow. This is... Ron and I keep it real, you know? You do.

We can sugar-coded if you want to. I mean, we want to give it to you straight. I'm going to take issue with your second prediction only because you kept it to the entire world. You want to narrow it down a little? It's like, wow. Weather. Poughkeepsie should look out. Charlie?

Yes, for my business prediction, I'm going to make you real happy here, Chris. I think Microsoft is going to have the hot consumer product of the holiday season with their mango smartphone. Really? Yes. I saw the, and I'm doing air quotes leaked video of Nokia CEO, Stephen Elap, demonstrating this in-house, and it's hot. And your non-business prediction? I got to trump these guys. I'm going to say alien invasion.

Nice. Wow. You mean another? All right. In the time we have left, give me the stock this on your radar. And in keeping with Independence Day weekend, I'm going to put a little caveat, not a caveat on this. I'm going to put some parameters around this.

Think of the founding fathers. Think of George Washington, Thomas Jefferson, John Adams. Pick a stock for a founding father. Ron? All right. In honor of Ben Franklin, renowned politician, inventor. publisher, author. I think he would get a kick out of Amazon.com.

From a publishing perspective, I think he'd get a real big kick out of the Kindle. And just an inventor, I think he would think it's pretty neat. And the ticker symbol? AMZN. James Early. Chris, I am a T-Total. You guys know me. I eat a pretty healthy diet.

I've never smoked a cigarette in my life, never taken drugs. But Ben Franklin was a founding father who was apparently known to partake of the cannabis. Yeah. And my stock is Scots, which owns Miracle Grow, which just announced plans to potentially advertise for the marijuana fertilizer market. We talked about this on a show a while back. So that's my stock. And the ticker symbol? SMG. Charlie Travers? Sticking with the agricultural theme at George Washington's plantation down at Mount Vernon is a must-see tourist site just south of us here in Old Town, Virginia. And George Washington placed a high priority on. on maximizing the profitability of his farm, you know, rotating his crops, tilling the soil. And so I would have think he would love the extra yields he would have got from Monsanto's genetically modified crops.

Plus, he could have benefited some Colgate, perhaps. I believe he had wooden teeth. Yes, he did. You know, they splice flounder genes into tomato seeds to prevent the tomatoes from freezing. I did not know that. George Washington probably dig that. All right. Charlie Travers, James Early, Ron Gross.

Guys, thanks for being here. Thanks for you, Chris. Thank you, Chris. Coming up, sports owner and technology mogul Ted Leonis on the future of pro sports, the business of happiness, and the one company he thinks has a perfect business model. Don't go away. This is Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. After our career spent mostly in the technology industry, Ted Leonsis is now the majority owner, chairman and CEO of monumental sports and entertainment, which owns the Washington Wizards, the Washington Capitals, and the Washington. and Mystics. He is the author of several books, the latest of which is The Business of Happiness, Six Secrets to Extraordinary Success in Work and Life. And he's here in studio. Ted, welcome.

Hey, thanks. So what got you interested in writing a book about happiness? Well, like most of your listeners, I was programmed to think that there was this formula for happiness where if you studied hard and got good grades, you'd get a good job, you'd make a lot of money. if you made a lot of money, that you'd be happy. And you'd define your happiness via success. And as life went on and I had my reckoning, I was in a terrible mishap with a plane, I realized that, you know, if you're happy, you can be successful.

But if you're successful, it doesn't necessarily mean that you're happy. So I don't want to give away the entire book. But six secrets to happiness and work and life. What are a couple that you think are essential? Well, one of the things that happened while I was writing the book was that there was this big pivot that this is not just a book for individuals, it's a business leadership book. And it really came down a few key attributes.

One was that you were an active participant in multiple communities of interest, being very, very active at work and at church and at synagogue or with your PTA. having that good third place becomes vital for your overall success. And you look at the most successful companies, be it of Facebook, I know the most successful product I ever launched at America Online was AIM. Howard Schultz was involved with your company for a while. If you ask Howard what business is Starbucks in, he'll tell you it's the neighborhood community business.

And so Facebook, AIM, they're all about community. Second is self-expression, high levels of self-expression. There's a reason that there's 250 million active monthly blogs. There's a reason that American Idol is still the number one show on network television, that having high levels of personal expression is probably why I wrote the book. It's why I make movies. It's why I blog every day at TED's Take. And I think self-expression and individuals that pursue that find balance.

and become happier and the happy you are, the more open you are to success. But companies that activate their employees in the communities of interest and companies that allow their employees to self-express, they tend to be the more successful companies. What are a couple of companies out there in America or business leaders that you think are really getting it right in terms of happiness? Well, I was involved early on. I'm very active on the board of directors of a fantastic young company called Groupon.

And Groupon reminds me a lot of the very early days of AOL. They're on a mission. They're in pursuit of what I call a double bottom line. They're trying to do good. And by doing good, they're doing well. In Groupon's case, they do good. They help people get into a community of interest and group shop. to get them the best deal. And then they help small companies, small merchants, your neighbors, if you will, not only to get a lot of customers, but to get cash up front because, you know, over the last two years, banks were not supporting small businesses. And so, you know, there's a perfect business model, a company who's executed on it very well. And, you know, Forbes called the fastest growing company in America. And being an insider, you know, it's probably undersold how fast

It's growing. You're listening to Motley Full Money. We're talking with Ted Leontes, the chairman and CEO of monumental sports and entertainment. You mentioned you blog every day at Ted's Take. One of the things that's on your blog is a list of 101 things that you want to accomplish before you move along. Well, you know, I made the list about 27 years ago after I had survived a mishap in a plane. And, you know, I prayed really hard and tried to cut a deal. with whoever was listening on if I lived, I hope to be able to leave more than I take.

And, you know, it was a very aspirational list. I think I'm at 82 of the 101 things. But really was the beginning for me of realizing that every individual and every company will have a reckoning. And the first thing you do when you have a reckoning in embracing it is you make your plan, in my case, It was a lifeless. When I just bought the Washington Wizards, the first thing I did was the 101 things to do to make you fall back in love with the team. Everyone has to have their list. And then as I matured and I started to pursue crossing off all these things on the list, I realized really what I was on was this path to self-actualization and happiness.

And, you know, to be honest, that's all my companies are on that. same path, that the happier the employees are, the more connected they are with the higher calling and mission of the organization, the more that they can show empathy and give back, the more productive the company becomes and the more value that it builds. But one of the things that's on your list is swimming with great white sharks. I'm sorry, there are some that I understand, like travel and that sort of thing. How did that conversation go with your wife, by the way, that all. Look what I just added to my list.

That one she'll do with me. The going in outer space, you probably want. I think it was really trying to craft a lifeless that how will you know that you live the life without regret? And what are the kinds of things that you can do, be it through philanthropy, through it. You know, I wrote down 25 years ago on a sports team win a championship. And that opportunity presented itself.

I had to do it, and now it's 12 years into my ownership. It was the greatest thing that I could have done, both economically and emotionally. It's been a great thing for my family. And so that list became very important as touch points on things to do so that I could look back and say, I accomplished a lot. But it really was the activator for this road that I've been traveling. traveling down on trying to build value and do things the do it the right way. When the average sports fan like me looks at pro sports, one of the things that we see in the headlines these days are labor troubles. Certainly in the NFL, that is the case.

There's talk of the possibility of a lockout. You're obviously a lifelong sports fan, but now you're an owner. What do you think is the biggest misconception about the business of pro sports? Well, for the most part, most teams don't operate on a profitable basis. I think people think that owners make a lot of money owning the teams when, in truth, where you make your money is when you sell the team. You know, as weird as this sounds, because the caps are one of the most successful teams in the league, we're about to have our 100th consecutive sellout.

I've never made a dollar of profit owning the Washington Capitals. Now, the team is appreciated in value, and that's wonderful on my balance sheet, but year after year I keep writing checks. And it's mostly because the expenses involved, be it players, be it your investment in the arena, be it your investment in marketing, that they far exceed. what you bring in a ticket revenue and television revenue. You're listening to Motley Full Money. Our guest is Ted Leonis, the chairman and CEO of monumental sports and entertainment.

You started at America Online in the early 90s and had great success there in helping to grow that company. When you look back now at the merger with Time Warner, what stands out in your mind? Is there something that you think, wow, if we had done this differently, it would have been? gone more smoothly, been more successful? What do you think about when you look about? I always hate people that through hindsight always have the opinions. I did write in my book. I was one of the few execs who thought it was a mistake. And for me it was a personal issue. We were a disruptor as a company, and we would attack traditional media companies. and now we were acquiring the world's largest media company.

So I used to say print is dead, and then I'd get an email after the merger. Well, you don't want to say that we own the largest publishing company. We'd launch something that would make sharing music free and easy. Well, you probably don't want to do that. We own the world's largest music company. And my belief was that companies do best when they're pure play. I don't like conglomerates. And, you know, had we stayed an independent company, you know, maybe we would have rolled up and become the platform for the Internet.

Before I let you get out of the studio, we'll wrap up with a round of buy-seller hold. This is a private company that's recently been valued north of $80 billion. Buy-seller-hold, Facebook as a public company. I would hold right now. I'm a big believer in Facebook and that it's become the start page and it gets so much time from not just young adults, but from everybody. And I'm on Facebook. I already have 5,000 friends. I've maxed it out.

And the advertising is very effective. I can see how this can become one of the great franchises. Buy seller hold Twitter as a public company. I don't, I'm not a big believer in their business model yet. And so I don't think, I think it'll be difficult for them to live up to a very high public multiple. And finally, your home is on several lists of haunted houses in the Washington, D.C. area, buy, seller hold, the existence of ghosts. You know, I'm going to tell you a funny story on that. somebody wrote a story a couple of years ago about I bought a home called Marwood.

Joe Kennedy lived there, FDR, live there. And so when I bought the home, I asked the owner, what's with the ghosts? Because I keep reading these things online. The author of the story had the wrong address. And so they wrote this story about this house was haunted, and it's the wrong house. And it's the wrong house. So it just goes to show that sometimes you just can't believe what's on the internet.

That sometimes something comes up on Google. And so the guy who saw me the house laugh said, look, if the house was really haunted, I would have charged you more. The book is The Business of Happiness, Six Secrets to Extraordinary Success in Work and Life. Ted Leontes, thanks so much for being here. Thank you so much. Be foolish.

Coming up, tips to help you rule your retirement. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. It's Independence Day weekend, and we figure it's a good time to help everyone declare their financial independence. And here to help is the Motley Fool's retirement expert, Robert Brokamp. Robert, welcome. Well, thank you, Chris.

It's great to be here. So it's always good to get a few tips to help people with their financial independence. The first one, you've got, figure out how much you actually need to be financially independent. That's right. So when people think of financial independence, they often think of retirement, or at least working later in life only because they want to, not because they have to. That's a pretty complicated issue, figuring out how much you need to save. And the truth of the matter is, most people don't bother doing it.

In fact, there's an organization called EBRI. They do a survey about this, and they found that 42% of people said they figured out how much they need to save for retirement by, quote-unquote, guessing. Awesome. Awesome. So I don't have a lot of faith. How's that working out? Exactly. So what you need to do is you need to play around with one of these retirement calculators.

Now, The Motley Fool has one on our website. You'll find one on just about any other financial website. You need to figure out how much you need to save. One of the interesting things about when you look at people's savings behaviors is how much they contribute to their 401K. And what's one of the biggest contribution rates? 6%. Why do you think that is? I don't know. It's an even number. It's an even number. And that's what the most common match is, right? So if people contribute 6%, they get that 50% match, well, does that mean that's enough to retire? Who knows? Depends on your age, depends on how much you've already saved.

So people aren't putting a whole lot of thought into it. Spend a little time with a retirement calculator, and if you don't want to do that, pay a fee-only financial advisor for an hour or two to run your numbers and see if you're saving enough to retire. What do you think is the biggest mistake people make, other than guessing? Putting it off, obviously. And when you look at the studies, you need to start saving about 10% of your income pretty soon. after you start working. So you're talking about in your 20s. You wait to your 30s. You're looking there about 15 to 20% to you wait till your 40s. You might have to save 20, 25% to actually retire at some point in your mid to late 60s. All right. Another tip you say pay down the mortgage

faster. That's right. So a lot of people separate debt between good debt and bad debt, good debt being like a mortgage and a school loan, bad debt being credit cards. And the implication there is that the good debt is okay to have. And it might be. depending on your situation. But if you are like a lot of people these days who have a lot of cash, there's a lot of money in money market funds these days paying maybe a half a percent. A lot of people have bonds, bonds these days paying three or four percent. If you have a lot of money in these investments and then you're also paying five, six or seven percent on your mortgage, it might make sense to use some of that money to pay down the mortgage. Now people will say a mortgage has tax

benefits, but you only get those tax benefits if you itemize your tax returns, and the vast majority of people don't itemize their tax returns, so they're actually not getting much of a tax benefit from their mortgage. Do you think the current housing environment, which is, I'm just going to say, not great, do you think that helps or hurts when it comes to dealing with your mortgage? Depends on your situation. If you are significantly underwater, meaning that you owe much more than the house is worth, and you think that it is possible that you'll be in a bad financial situation, you'll lose your job or something like that. It doesn't necessarily make sense to accelerate paying off that mortgage. You're going to need that extra money in case something happens.

However, otherwise, I think it still makes sense to pay down the mortgage, or at least use some of that money to refinance your mortgage. You're looking now at 30-year rates at about 4.5, 15-year rates at about 3.75 percent, these are very, very low rates. If you can cut your rate from maybe 1 percent, 1 and 1 a half percent, over the life of that mortgage, you're going to save thousands of dollars. All right. One more tip to help us declare our financial independence, and you say, buy dividend-paying stocks for a portion of your portfolio. That's right. It doesn't have to be your entire portfolio, but maybe for a portion of your portfolio. And let's look at a hypothetical situation. So let's say you bought 100 shares of a stock that trade for $100.

It does not pay a dividend. 20 years later, the price of that stock didn't move anywhere. How much money did you make? None. Absolutely. Good job, Chris. You make no money whatsoever. You had a $10,000 investment.

20 years later, it's only worth $10,000. Now, let's say that $100 stock actually paid a 3% dividend. So you're making, what's that, $10,000 investment? Don't make me do math. $3, $300 a year as a dividend. How much you're going to have 20 years later, even if the stock price does not move, that investment's going to grow from $10,000 to over $31,000. How is that possible?

Well, you have to understand what dividends do. Dividends grow a little bit every year and historically at a rate that exceeds inflation. What do most people do with those dividends? Put them right back in. That's right. They buy more shares of stock. And then they have more shares of stock that pay increasing dividends, which they used to buy more shares of stock. So in this hypothetical situation, you went from owning 100 shares of the stock to 317.

The actual amount of dividends you earned went from 300 to 2,864, again, assuming that there was no stock price movement. If you get a little bit of capital gain, hopefully you get a lot, you've accumulated even more shares to benefit from them. Stocks that don't actually move in price, you pretty much just describe most of my portfolio. Well, that's exactly it. Some people will say that, well, this is an unrealistic scenario, but you look over at companies like Cisco or Microsoft. I'm just going to say Cisco systems. Exactly. These stocks have not moved at all since the late 90s. You don't have to rub it in. You look at Ford. Ford is at the same price it was trading in 1987. Xerox is at the same price it was trading in 1979. It is certainly possible that you can own an investment that will not move much over a decade or two.

All right, before we let you get away, it's, again, it's Fourth of July weekend. We're thinking about the founding fathers. If you had to pick a founding father to take care of your money, to manage your money, who are you going with? You going like George Washington, Ben Franklin? What are you thinking? I think I'm going to go with George Washington because I live not that far from Mount Vernon, his estate. He actually, when he died, his finances were not in great shape, but obviously it was enough to maintain the estate. And here we are. A couple of hundred years later, still looking at his house and marveling. at his fake teeth. He runs the Motley Fool's Rule Your Retirement Service. He is our resident retirement guru. Robert Brokamp. Robert, thanks for being here. Thank you very much. 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 ourselves stocks based solely on what you hear. Hey, if you haven't already, check out the new Motley Fool mobile app. You can get our podcast, all of our stock analysis and commentary for free. Just go to app.fool.com.

That's it for this week's show. Our engineer is Steve Broido, our producer. is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.