Christmas on the Block

This is a great song with a great story behind it. In the mid-1980s, Alan Mann, heard about a group house for the blind in Upper Darby, PA. Every Christmas, the blind residents decorated a tree in front of the house. The neighbors said that it was the most beautifully decorated tree on the block. Although the blind residents couldn’t see, they gave an annual gift to those who could. Alan Mann was inspired by this story and wrote the song, Christmas on the Block, with the chorus sung by second grade students.

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Google Continues Innovating with Drone Delivery

* One of Google’s innovations is having drones deliver packages directly to homes.
* This shows Google’s commitment for continual innovation.
* In the meantime, the company is likely to perform well due to its advertising business.
* The stock remains fairly valued on a long-term earnings growth basis.

We have already heard that Amazon (AMZN) and Domino’s Pizza (DPZ) were testing the use of drones for delivering their products. Google (GOOG) (GOOGL) has recently announced that it is also testing the use of drones for delivery services. It is not clear if the Federal Aviation Administration (FAA) would ever approve of this or if all of the glitches would be worked out with such a system, but the technology does look interesting.

Google calls its drone efforts, Project Wing. The company reported that it used a 5-foot wide single-wing prototype to deliver candy bars, dog treats, water, cattle vaccines, and radios to two farmers in Queensland, Australia earlier this month. This video link shows the drone in action. Google did acknowledge that it would “take years to develop a service with multiple vehicles flying multiple deliveries per day.” The use of drones for delivery does raise a number of safety, logistical and liability issues. It does seem possible that this technology could be approved for use in less-populated, rural areas.

The effort to get drones into the delivery business is an example of Google’s commitment to innovation. Google is also working on a self-driving car, which I wrote about previously. These types of projects are more long-shot goals and will not have a material impact on the business any time soon if ever. However, they are interesting endeavors. So at the very least, the efforts should provide Google with plenty of positive publicity.

Where Google is innovating for the nearer-term in its core business is in internet search and discovery. Google is in the process of improving its app indexing. This involves improvements with allowing mobile users to more efficiently search and find what they are looking for. This includes allowing users to easily discover new apps and to create more engagement for users with apps that they haven’t used in a while. Google is also working on improving the user experience in switching from screen to screen on Android devices. The goal here is to improve the user experience by making switching from screen to screen as seamless as possible.

Advertising is what is currently driving Google’s success as it comprises 90% of total revenue. Although the company’s total revenue continues to grow, the rate of growth has declined in recent years. This was due to the advertising portion of the business maturing. The non-advertising portion of the business is growing at a faster rate than the advertising business. For example, for the first six months of 2014, advertising revenue increased by approximately 18% year-over-year, while non-advertising revenue increased by about 50% year-over-year. Since non-advertising revenue only comprises 10% of total revenue, the material impact on the company’s bottom line from this portion of the business is low. However, as the non-advertising business comprises more of the company’s total revenue over time, Google’s rate of growth is likely to benefit.

Since the advertising business is still increasing at double-digit growth rates, I think that stock will still perform well over the next few years. Google’s total revenue is expected to increase by 11.5% in 2014 and by 18% in 2015. Earnings are also expected to increase at healthy double-digits rates over the same time. Analysts are expecting a 20% increase in earnings for 2014 and a 19% increase for 2015. This is significantly higher than the expected annual earnings growth of the average S&P 500 company of about 10%. Google is fairly valued as its forward PE over its 5-year expected annual earnings growth rate is between one and two at 1.32. This is slightly below the Internet Information Providers industry PEG of 1.55 and slightly below the S&P 500’s PEG of 1.45. Given this fair valuation and above average earnings growth, I expect the stock to outperform the S&P 500 over the next few years.

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Who Wants to Be a Millionaire Investor?

Of course, just about everyone would like to be a millionaire investor. The ultimate investment goal of achieving financial independence where the level of wealth reaches a certain comfort zone is on the minds of many investors. What is the ideal way to achieve this? The majority of successful investors built wealth over time by dollar-cost averaging into stocks. This method takes the guesswork out of trying to time the market. In the end, short-term trading can be a zero-sum game as many gains are offset by the losses and the high-cost of commissions. It’s difficult for short-term traders to make the right call consistently. Using a 401k or similar plan to dollar-cost average is a great way to grow wealth over the long-haul. By putting an even amount of money into the market at regular intervals, investors can grow wealth tax free and not fret over the short-term market fluctuations.
The first step is to make a commitment to save a percentage of earnings. Investors should consider contributing the maximum amount allowed or at the very least, contribute the amount that would capture the entire company match. I would recommend a 10%-15% contribution for most individuals. By looking at a few examples, we can get a better picture of how to reach the $1 million milestone.

Example #1:
Let’s take a 25 year-old who is making $40,000 per year and contributing 10% of his salary to his 401k. Assuming that this individual does not yet have anything saved for retirement and that his employer contributes 1% of his salary to the plan annually with a 10% rate of return, he would reach $1 million at about age 57. After his entire career, this individual would have about $2.3 million at age 65.

Example #2:
Next, we have a 35 year-old woman who earns $45,000 per year and contributes 15% of her salary to her 401k. She already has $50,000 saved for retirement. Assuming a 10% rate of return, she would reach $1 million approximately at age 59. If her employer contributed 1% annually to her 401k, she would also have about $2.3 million at age 65.

Example #3:
We have a 55 year-old man who earns $75,000 per year and contributes 10% of his salary to his 401k. He has $200,000 saved for retirement. Assuming the same 10% rate of return, this individual wouldn’t reach $1 million until age 68. If his employer contributed 1% annually to his plan, this man would have about $682,000 at age 65.

These examples can be calculated at and These calculators are fun tools to play around with to figure out how much wealth you can acquire. Another important calculator, at, shows how much you’ll need at retirement. This is something that is important for everyone unless they are already independently wealthy.

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Building a Better Life is my take on building a better life. Through faith, financial peace of mind, fitness, humor and music – we can all start building a better life for ourselves and others.

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