Ask the Fool
Q. Can you explain what mortgage “points” are?
–SH, Mobile, Alabama
A. A point is 1% of a home loan. So if you’re borrowing, say, $300,000 to buy a home, one point would be $3,000. You’re most likely to run across “discount points,” which are points you may choose to pay in order to lower your loan’s interest rate. Doing so will shrink the total interest you’ll pay over the life of the loan and reduce your monthly mortgage payment.
It’s often not worth paying points if you’re not likely to stay in the home for many years, or if you have an adjustable-rate (not fixed-rate) mortgage. If you pay, say, $6,000 in points to lower your rate but then sell the home three years later, you likely won’t have saved enough to offset that $6,000 cost. And points paid on adjustable-rate loans usually affect only the initial rate, saving you less in the long run. Points paid to reduce your interest rate are generally tax-deductible, but you can only deduct them during each year in which you would have paid that interest.
You may also run across “origination” points, which are fees charged by some (though not all) lenders for work done on your mortgage. They’re not tax-deductible.
Online calculators such as those at Fool.com/calculators/ can help you determine whether paying points is a smart move for you.
Q. Where can I find out what percentage of a company’s stock is owned by insiders?
— FE, Grafton, Vermont
A. Try asking the company itself by contacting its investor relations department. Or consult a financial website such as Finance.Yahoo.com, where you can look up information on the company, including its major holders.
Managing Medical Expenses
It’s no secret that health care costs have skyrocketed in recent decades, and that they’ve left many Americans with massive, unmanageable medical bills. Here are some ways to avoid ending up in that situation, or to deal with it if you’re already there.
• Have an emergency fund ready. Most of us should have at least three months’ worth of living expenses socked away in an accessible account — if not six or more months’ worth. That can keep your household afloat in the event of an unexpected job loss, costly repair bill or major medical expense. At a bare minimum, be prepared to pay the deductible on your health insurance plan.
• Plan for expected health care expenses. Not all medical bills pop up suddenly — many are routine or expected, such as doctor visits for illnesses, upcoming surgeries or dental work. Plan and save for such expenses the way you’d do for other household expenses.
• Make use of flexible spending accounts (FSAs) or health savings accounts (HSAs). These let you put aside pretax dollars to be spent on qualifying health care expenses such as doctor visits, lab work and prescriptions. Read up on each first to see which will serve you best.
• Ask for generic medications. If you don’t ask, you may be prescribed an unnecessarily costly drug.
• Read all medical bills carefully. It’s not uncommon to find erroneous charges, and sometimes even to be double-charged. If you haven’t received an itemized bill, ask for one. Then do some digging to make sure the charges are correct — and certainly ask that any incorrect charges be fixed.
• Negotiate. Not all charges are set in stone. Many health care providers — doctors’ offices and hospitals alike — will work with you if you’re not able to pay your bill in full and on time. They might reduce the bill or set up a payment plan for you. This tactic won’t always work, but it’s worth a try.
My Dumbest Investment
Diamonds as Big as Horse Droppings
Many years ago, I was not an investor, other than trying to pay for a small farm I had bought. My son called from college and said, “Dad, you need to buy some Lucent stock. You will make enough money that you can buy diamonds as big as horse turds.” The imagery appealed to me, so I did some cursory research and bought $1,000 worth of Lucent stock. It started to go down, so I bought $500 more; Further down, I bought another $500 worth. I could have made four farm payments with that money. The diamond vision faded. Ultimately, I sold the shares. I’m still not much of an investor, but have bought a few stocks, researching them in depth before clicking “buy.” I’m doing OK. And my farm is paid off.– R., online
The Fool responds: Lucent was spun off from AT&T in 1996, becoming a stand-alone communications equipment company. At one point, it was among America’s most widely held stocks, and its price soared along with other tech companies. Amid general investor euphoria over a surging stock market, many didn’t notice Lucent’s deteriorating balance sheet and didn’t question costly acquisitions. The more you dig into a company before buying, the better — and it’s important to keep up with the progress of your holdings. Also, think twice before doubling down on a falling stock, as often stock prices fall for good reasons.
Name That Company
I trace my roots back to the 1970 introduction at a weightlifting convention of exercise machines called Blue Monsters, with a key part shaped like a mollusk’s spiral shell. I was sold in 1986 to a guy who filed for bankruptcy protection in 1990. My expansion into medical equipment was unsuccessful. Today, based in Vancouver, Washington, and with a market value recently near $185 million, my brands include Bowflex, Schwinn, JRNY and my own name. I sell elliptical machines, treadmills, recumbent and upright exercise bicycles, and more. I’ve been named a top place to work many times. Wer bin ich?
Last Week’s Trivia Answer
I trace my roots back to 1847, when a 30-year-old German invented an improved electric telegraph and launched a telegraph construction company in Berlin. In the 1850s, I built much of the Russian state telegraph network. I introduced a profit-sharing plan for employees in 1858 and a pension in 1872. I laid multiple trans-Atlantic cables in the 1870s, and entered data processing in the 1950s. With a recent market value near $139 billion, I’m a technology giant serving customers in industry, infrastructure, transport and health care. I employ about 300,000 people worldwide and rake in around $70 billion annually. Wer bin ich? (Answer: Siemens AG)
The Motley Fool Take
Roku (Nasdaq: ROKU) is a premier streaming hub whose stock has surged in recent years. It doesn’t have a problem selling its dongles at a loss, as its deals with smart TV makers make it the default operating system in 38% of smart TVs shipping in the US
Building its audience base is everything, and the pandemic has helped Roku’s audience grow faster. The 56.4 million active accounts that it had by the end of September were a 23% increase over the previous year.
Folks turn to Roku as a free hub to launch thousands of available streaming services, while Roku generates money through ads it shows them. Average revenue per user is up 49% over the past year. The streaming hours served by Roku have surged 75% over the past two years.
Roku is just scratching the surface when it comes to monetization. It has started securing original content, rewarding its growing base with shows and films they can’t get anywhere else.
There are risks here — such as Roku’s stock price, which despite recently being down 52% from its 52-week high, still has a forward price-to-earnings (P/E) ratio in the triple digits. But as long as Roku continues to be a leader in streaming-service companies, its future looks bright — and long-term investors might consider it for their portfolios. (The Motley Fool owns shares of and has recommended Roku.)