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Investing Specialists

Weekly Wrap: Fund Upgrades, Rising Tech Stocks, and IRA Tips

We recap the week on Morningstar.com and note the most popular stocks, funds, and exchange-traded funds.

Editor's note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Our three children--all high-school seniors--headed back to class this week. If asked, “How did you spend your summer?,” I suspect each would’ve answered, “Overwhelmed.” During the summer, they toured the colleges on their shortlists. They met with admissions counselors. They honed their resumes of extracurricular activities. They attended personal-essay-writing boot camps and endured critiques of those essays from each other--and, perhaps worse, from their mother.

In what was a happy coincidence of timing, I listened to last week’s episode of The Long View podcast featuring Morningstar director of behavioral finance Sarah Newcomb on the drive home from our last college visit. What struck me: I could apply so many of Sarah’s behavior-based tips for how to get one’s arms around overwhelming financial tasks to my family’s ongoing college search process.

Here are three of my top takeaways from Sarah’s conversation with The Long View hosts Christine Benz and Jeff Ptak. Don’t worry--I’ll stick with the financial applications (not the college search implications) of Sarah’s insights!

Embrace rules of thumb and smart shortcuts. Sarah is a fan of both because they distill complex matters into simpler ideas that can get us moving forward, thereby working with our brains rather than against them.

Real-world examples of these shortcuts in the financial arena include the oft-cited “save 20% of your income” rule, or the shortcut that the percentage of your portfolio dedicated to equities should be 100 minus your age. Morningstar’s ratings (for both funds and stocks) fall into the “smart shortcut” bucket, too.

Of course, those of us who’ve been investing for a while recognize that these rules of thumb are often just starting points. In fact, some might argue that such shortcuts oversimplify things. But if simplification at least gets someone thinking about a challenge or task rather than avoiding it entirely, that’s a step in the right direction.

Make “good enough” decisions. During the conversation, Sarah discusses two different mindsets: the maximizing mindset and the “satisficing” mindset. The first is about finding the “perfect” choice, while the latter is satisfied by meeting or exceeding a particular standard that one sets. While research shows that those with a maximizing mindset often make objectively better decisions, they aren’t as happy with their choices as satisficers. Maximizers are rarely satisfied, as they’re always looking for a better alternative.

What might that mean in investing? Assembling a portfolio of low-cost index funds instead of trying to find “winning” portfolio managers who can consistently beat the market. Or sticking with a three-fund portfolio--or even a target-date fund--instead of attempting to build a perfectly optimized portfolio. There might be “better” alternatives than these “good enough” options--but you might constantly be looking for them.

Train your brain to think further ahead. This is one of my top Sarah-isms, one she’s written about before. The idea is to picture yourself in your future. Use concrete details, because the better you can visualize something, the less abstract it’ll seem. And if something is no longer abstract, it’s easier to plan for, because you’ll be more emotionally engaged with it and view it as an attainable reality.

This is, of course, a great piece of advice for those saving for retirement--or even better, for those who aren’t saving, or not saving enough. Picturing what your specific retirement might look like (maybe by even doing a trial run, as my colleague Christine Benz has suggested) may allow you to better sacrifice the immediate gratification that spending often brings in order to save for the specifics in that retirement vision.

So as our family continues its quest for finding the right colleges, we’ll take those smart shortcuts where we can and make good enough decisions. And my husband and I should probably begin visualizing what’s currently pretty abstract: how we’ll fill our empty nest a year from now.

--Susan Dziubinski

Editor's Picks

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5 of the Biggest Upgrades in 2021
T. Rowe Price funds lead the way on upgrades.

6 Charts on Rising Tech Stocks
As value slows down, tech is back in the driver's seat.

Should the SEC Expand its Scope?
Rethinking 90-year-old regulations.

Pushing the Limits of Your Roth IRA
Make it a mega.

What Do Fund Managers Really Think of Cryptocurrency?
Are they looking at it with open eyes or giving it the side eye?

Portfolio Planning and Personal Finance With Christine Benz

3 Great Charitable-Giving Strategies for Retirees in 2021
Tax-friendly ideas for small, medium, and supersize givers.

Could Your Long-Term Care Premiums Be Hiding in Plain Sight?
If you have a permanent life insurance policy or annuity, you may be able to trade it for long-term care coverage.

Mutual Funds and Exchange-Traded Funds

Shades of Green in the Bond Market
Assessing the myriad ways that bond ETFs incorporate ESG factors.

5 Superior High-Quality Funds
These Morningstar Medalists have a significant portion of their assets tucked in wide-moat stocks.

2 Newly Rated--and Exceptional--Funds
Here's what we think of a bond fund from a well-respected shop and an intriguing mid-cap stock fund with a well-heeled manager.

Stocks

When Will U.S. Autos Recover From the Chip Shortage?
We think the worst of the damage was in the second quarter.

A Stellar and Undervalued Wide-Moat Brewer
Constellation Brands isn't sitting still.

Select Opportunities Remain as Banks Rebound
Interest rates will be one of the biggest drivers and the biggest question that investors need to think about when they’re considering investing.

2 Undervalued Streaming Stocks
We think they're better opportunities than Netflix.

Stock Analyst Updates

NHTSA Opens Investigation into Tesla Autopilot Software
Shares crashed at the time of the writing, and currently we view shares as slightly overvalued.

Berkshire Again a Net Seller of Equities in Q2
Wide-moat Berkshire Hathaway had a fairly quiet second quarter in its equity investment portfolio, selling some $2.1 billion worth of stock while also acquiring a little over $1 billion of equities.

Home Depot's Profitability Remains Solid
We surmise some selling, general, and administrative scale gains will cede as Home Depot’s top-line growth normalizes.

Walmart Beat Our Expectations
We attribute the outperformance to pandemic-related volatility.

COVID-19 Vaccine Booster Plans Match Our Expectations
We don’t expect any changes to our fair value estimates or moat ratings for the mRNA manufacturers.

Nvidia Enjoys Broad-Based Growth in Q2
During the quarter, Nvidia benefited from cryptocurrency mining demand, including crypto mining processor, or CMP, sales of $266 million.

Cisco Posts Profound Product Order Growth in Q4
We are raising our fair value estimate for narrow-moat Cisco Systems to $52 per share from $50 after fourth-quarter product order growth accelerated and the transformation to be more recurring in nature continues to gain momentum.

Amid Regulatory Crackdown in China, Tencent Is a Buy
We're maintaining our $103 per share fair value estimate.

Rekenthaler Report

Vanguard Total Bond Market: A Success Story
For more than 30 years, the fund has delivered on all counts.

Advisor Insights

The Next Generation and Social Media’s Role in Financial Advice
A recent incident on TikTok shows just how easily, and willingly, the next generation will call out bad behavior.

The Long View Podcast

Rick Bookstaber: Avoiding Complexity Is 'Risk 101'
The risk-management expert and author discusses the differences between risk tolerance and risk capacity, how market cycles impact risk, and how to keep things simple by being "pre-armed."

Sustainability Matters

Racial Incidents Spiked in 2020 Despite More Diversity Initiatives, New Study Shows
A Sustainalytics report assessed company involvement in controversies related to race and ethnicity.

It's Not Either/Or: How Investors Meet Both Financial and DEI Objectives
Employer-managed plans can offer both high returns and an opportunity to support DEI.

The Short Answer

Buying Your First Car? What to Consider When Making a Big Purchase
Keep your budget in mind as you plan and research the immediate and future costs of a big-ticket item.

What Is a Stock?
This type of investment is the backbone of many investor portfolios.

Policy

Why Tontines Should Be a Piece of the Retirement Solution
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Commentary

Would You Rather Buy an Annuity or a Guaranteed Income for Life?
We put this question to the test to learn more about how retirement savers perceive annuities.

Not All Social Media Comparison Is Bad for Your Financial Health
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U.S. Asset Flows Break From the Trend in July
Investors pivot away from value-equity funds.

The Power of a Personal Connection to Retirement
For many, simply knowing retirees can change how they view preparing for retirement.

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