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Risky Business

Q: How can one learn about what risks a company faces? — H.C., Columbus, Mississippi

A: Companies don’t like to broadcast their risks and challenges, but publicly traded American companies are required by the Securities and Exchange Commission (SEC) to list them. Look up a company’s annual “10-K” report at websites such as SEC.gov/edgar.shtml or the company’s own website, and you’ll find a detailed review of its financial and operational health and progress and a thorough overview of the risks it faces.

For example, here are some (of many) risk factors cited in Apple’s 10-K for 2018 (and discussed in more depth there): dependence on “component and product manufacturing and logistical services provided by outsourcing partners, many … outside of the U.S.”; effects of “Global and regional economic conditions” on Apple’s “business, results of operations, financial condition and growth”; and reliance “on access to third-party digital content, which may not be available … on commercially reasonable terms or at all.”

Every company faces risks. They shouldn’t scare you away, but do consider them. Know, too, that companies can manage many of their risks. Ways to do this include insurance and locking in currency rates or commodity prices via futures contracts.

Q: What’s a mutual fund’s “load”? — P.D., online

A: It’s essentially a sales fee, typically charged when you buy into the fund. (Sometimes it’s charged when you sell out of the fund, and sometimes on an ongoing basis.)

Loads can be as high as 8.5 percent, but 5.75 percent or lower is more common. Fortunately, there are plenty of no-load funds; the vast majority of assets in mutual funds are in those with no loads.

FOOL’S SCHOOL

Don’t Toss Those Proxy Ballots

If you own shares of stock in individual companies, you’ll receive proxy voting materials annually, typically including an annual report and a ballot. Most individual shareholders don’t bother voting; that’s a shame, as those ballots let investors weigh in on how companies conduct their business.

It’s true that your vote won’t be as influential as those of institutional shareholders such as pension or mutual funds, but individual investors hold around 41 percent of voting shares, and your vote can still make a difference.

Last year, for example, pharmaceutical company McKesson’s CEO got a 10 percent pay cut after shareholders rejected a proposed CEO compensation plan in 2017 amid concerns about the company’s alleged role in America’s opioid crisis. Shareholder pressure was also behind global consumer products giant Unilever’s pledge to get to 100 percent recyclable, reusable or compostable packaging by 2025; ExxonMobil’s appointment of an atmospheric scientist to its board; and KFC’s decision to only buy chicken free of problematic antibiotics.

Even if a measure doesn’t get approved by most shareholders, meaningful non-majority support can be influential. Here’s how you can be a more involved shareholder:

¯ Along with your ballot, you’ll typically receive a booklet outlining issues to be voted on, including management’s positions and opposing positions. Read it.

¯ If you don’t vote or you leave your proxy items unmarked, your ballot will often automatically be counted as agreeing with management. Read the company’s proxy statement to see how it treats abstaining votes.

¯ If you’re invested in a mutual fund, visit its website to learn how management will vote for the shares it holds. Learn more about proxy voting at Investor.gov. (Look for its “Shareholder Voting” menu option under “Research Before You Invest.”) If you’re interested in socially responsible investing (SRI), visit sites such as CorpWatch.org, CSRwire.com and GreenAmerica.org.

EDITOR’S NOTE: The Motley Fool is an investment column created by brothers David and Tom Gardner and distributed by Andrews McMeel Syndication.

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