Two rules to know

Q. What's the "wash sale" rule? -- R.S., Washington, Pennsylvania

A. It's something you need to pay attention to if you're selling an investment and plan to buy into it again soon -- perhaps when you want to sell a stock to write off the loss on your taxes before the end of the year.

The IRS won't permit you to claim such a loss, though, if you replace it with the same or a "substantially identical" security within 30 calendar days before or after such a sale. (It also won't work if you sell a stock in your own account and then your spouse buys it in theirs during the same period.)

Here's a silver lining: If you can't take a loss because of the wash sale rule, you may be able to claim it later when you sell your new stock.

Q. What's the "Rule of 72"? -- T.L., Mesa, Arizona

A. It's a fun math trick that shows how long it will take to double a number. For example, if you expect an investment to grow by, say, 8% annually, divide 72 by eight and you'll get nine -- meaning that it will take nine years to double your money at that rate. It works in reverse, too. If you want to double your money in, say, six years, divide 72 by six and you'll get 12 -- meaning that 12% is the growth rate you'll need.

The rule is most accurate with rates between 6% and 10%, but is useful a bit beyond that, too. For example, if inflation is averaging 3% annually (as it has, historically), divide 72 by three and you'll see that prices are likely to double in about 24 years.

Fool's School

Sufficient Homeowners Insurance

If you own a home, you need to be carrying homeowners insurance. But that's not all: You need to be carrying enough insurance. If your coverage is insufficient, you might pay lower premiums, but you might also end up in hot water should disaster strike.

It's a good idea to review your policy every now and then to make sure it does enough for you. For starters, it should cover the cost to rebuild the home, not just what you paid for the home -- construction costs can go up significantly over time. Call your insurer and review your policy with them.

Your policy should cover your personal possessions, as well. It's smart to inventory them in detail; you might want to walk around and take photos or video. Focus on high-value items, such as jewelry, electronics and expensive collections. You may need more than what a basic policy covers, so check with your insurer.

Most policies will offer at least $100,000 in liability coverage, which comes into play if you get sued. It's often best to get at least $300,000 to $500,000 in coverage, though -- and perhaps more if you have substantial assets and a lot to lose.

Another good idea for those with substantial assets is umbrella insurance. It's a separate policy, often surprisingly inexpensive, that can provide additional coverage beyond the limits of your other policies.

Depending on where you live, you might want extra coverage to protect you from various disasters such as flooding, wildfires, sinkholes and earthquakes. Standard homeowners insurance policies often don't cover such events. You can learn what risks your home faces at sites such as RiskFactor.com and FLASH.org.

Ideally, you'll also want your insurer to cover some or all of your living expenses if you aren't able to live in your home for a while.

It's smart to shop around to find the best coverage you can afford from well-rated insurers at least every few years. Having sufficient coverage can save you a lot of heartache as well as money.

My Dumbest Investment

Limit Orders Didn't Work

I think of dumb investments being mostly buying for the wrong reason or not selling due to greediness. This regrettable investing move of mine was the latter. I held on to my shares of Disney too long, trying to milk every last dime out of the price before selling. I kept placing limit orders to sell, but the price never rose high enough to trigger the sale. I eventually gave up. Then the stock sank sharply. Ugh. -- Scott, online

The Fool responds: Limit orders can be handy when you want your brokerage to sell (or buy) shares of a certain stock only if the price rises (or falls) to a specified level. But using them, you do run the risk of never selling or buying if the price never goes where you want it to. It can seem reasonable to wait for a more perfect price before taking the plunge. However, it often makes more sense to just sell your shares if you no longer have faith in the company or have found a better investment -- or to just buy shares if you have great long-term expectations for a company.

Disney's stock recovered after that drop, and set a new high in 2021, but it has fallen sharply since then, presenting an attractive entry point for long-term believers. (Do you have a smart or regrettable investment move to share with us? Email it to [email protected].)

Foolish Trivia

Name That Company

I trace my roots back to 1999, when four fellows began developing sales automation technology in a San Francisco apartment. By 2001, I had more than 3,000 customers, and by 2012, more than 100,000. I was added to the Fortune 500 in 2015, and in 2020, I became one of the 30 companies in the Dow Jones Industrial Average. I bought Slack in 2021. Today, with a market value recently near $280 billion, I'm one of the world's largest customer relationship management specialists, and I employ more than 70,000 people. Offering cloud-based services, I rake in about $34 billion annually. Who am I?

Last Week's Trivia Answer

I trace my roots back to 1976, when a store called Price Club began in a converted airplane hangar in San Diego. Another company bearing my current name opened its first warehouse in Seattle in 1983, and it was the first company to grow from zero to $3 billion in sales in less than six years. Those companies merged in 1993, and today, I'm a retail powerhouse, with a recent market value topping $320 billion and 872 warehouses around the world (including 600 in the U.S.). On average, I only mark up products by 11% to 13%. Who am I? (Answer: Costco)

The Motley Fool Take

StoneCo for Consideration

StoneCo (Nasdaq: STNE) is a Brazil-based financial technology ("fintech") company that provides payment processing services and other offerings. The company's stock has plunged some 80% from its high in 2021, due in part to issues with its lending business and investors pivoting aggressively away from fintech companies with growth-dependent valuations.

StoneCo took some big losses on bad loans in its portfolio, and temporarily suspended issuing new loans to applicants. But right now, there's a lot to like about StoneCo. It started to offer new loans through its credit unit again, and its payment processing business is powering stellar results. The total number of customers using its payment platform grew 41.7% year over year to reach 3.3 million in the third quarter, and the company increased its average transaction fee to 2.49% from 2.21% in the prior-year period.

Overall revenue increased 25.2% year over year in the third quarter, and adjusted income skyrocketed 302%. The company doesn't have a decadeslong track record of growth, and it has experienced significant management turnover. But with a recent forward-looking price-to-earnings (P/E) ratio of 12, well below the five-year average of 35, StoneCo has the makings of a dirt-cheap growth stock at current prices. (The Motley Fool owns shares of and has recommended StoneCo.)

COPYRIGHT 2024 THE MOTLEY FOOL, DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION, 1130 Walnut, Kansas City, MO 64106; 816-581-7500.