Login | June 17, 2025
MLM cautions
THE MOTLEY FOOL
Ask the Fool
Published: June 17, 2025
Q: I've heard a lot of snarky remarks about multi-level marketing. Is it really a scam? -- R.B., Frisco, Texas
A: At its core, the multi-level marketing (MLM) system uses independent salespeople to sell, and it usually encourages them to recruit others as well. When an MLM business focuses heavily on recruitment, stressing how much money someone can make by earning commissions on sales from their recruits -- and, often, those people's recruits -- it's in or near pyramid-scheme territory. When it focuses mostly on sales, it's less problematic.
It's true that some people make good money in MLM businesses, but the vast majority do not. A 2024 Federal Trade Commission study found, after reviewing dozens of MLM enterprises, that most participants make (on average) less than $84 per month -- and that most MLM income disclosures don't include lower earners.
Meanwhile, many MLM programs require you to buy your own inventory, which will eat into your profits if you're not a good seller. Do a lot of research before signing up with any MLM business.
Q: I've heard America may soon experience stagflation. What's that? -- F.E., La Crosse, Wisconsin
A: Stagflation, a combination of the words stagnation and inflation, is an economic environment marked by high unemployment, rising prices and slowing economic growth. It can be hard for an economy to get out of stagflation: Remedies for slow growth (such as stimulating borrowing by lowering interest rates) often increase inflation, but remedies for inflation (such as raising interest rates) often put brakes on growth.
Some economists are indeed worried about stagflation in the near future, due to factors including tariff wars and government layoffs.
Fool's School
Terms to Know
Here are some financial terms you may run across that are good to understand:
Aggressive growth fund: A mutual fund or exchange-traded fund (ETF) that aims to grow value for shareholders by investing primarily in stocks of fast-growing companies. It aims for above-average returns but also tends to have above-average risk.
Asset classes: Kinds of investments with similar traits. Three of the major ones are cash, bonds and stocks.
Basis point: Most often used as a measure of changes in interest rates. One basis point is 1/100 of a percentage point, so a 50-basis-point move would be 50/100 of one, or half a percentage point.
Capital gain/loss: The difference between the price at which an asset is sold and its original purchase price (or "basis").
Commodities: Goods that are generally the same no matter the producer -- such as crude oil, silver, gold, coffee, soybeans, wheat or beef. They're traded in large quantities on an exchange.
Cost basis: The original price paid for an investment (including commissions).
Equities: Generally, a fancy name for stocks.
Escrow: An arrangement whereby a third party holds funds securely to facilitate a transaction. Escrow is commonly used in real estate, such as when funds are held by a mortgage lender to cover tax and property insurance payments.
Free cash flow: The cash that's left over after expenses -- including bills from suppliers, salaries, new equipment and advertising -- are accounted for.
Gross domestic product (GDP): The value of all goods and services provided within the borders of a country.
Joint venture: In the business world, typically a partnership between two or more companies to achieve a purpose while sharing expertise, costs and profits.
No-load fund: A mutual fund that does not charge a sales commission.
Securities: Financial assets that can be easily traded; common types include stocks, bonds and certificates of deposit (CDs).
My Smartest Investment
Moved Money Out of Stocks
My smartest move of late was putting 100% of my rollover IRA (which is worth hundreds of thousands of dollars) into a Schwab money market fund in July 2024. The fund has been paying between 4% and 5% in interest, and it has no exposure to the stock market. Considering the effects of what happened in the market on April 3-4, I feel very lucky, and I'm not going to be moving it out for quite some time. -- Lenny F., Lyndhurst, Ohio
The Fool responds: There's much economic uncertainty these days, and it has some investors selling stocks while others are licking their chops and looking to buy stocks at depressed prices. It's impossible to know what the best course of action is because the market could fall much more -- or it might not.
Investors do need to understand their personal risk tolerance and should not be investing money they might need in the short term in the stock market. It's always best to keep any money you might need within five (if not 10) years out of stocks -- and in a less volatile place, such as certificates of deposit (CDs), money market accounts or money market funds. But remember that over the last 75 years, the S&P 500 has fallen roughly 10% from its highs every year or so -- and each time, it's recovered to go on to higher highs.
Foolish Trivia
Name That Company
I trace my roots back to 1927, when an ice store in Dallas that was open 16 hours a day became the world's first convenience store, offering staples such as milk, bread and eggs. After one location stayed open all night to accommodate college students, many of my other locations began staying open 24 hours a day. In the mid-1960s, I launched a popular slushy drink and then takeout coffee. In 2005, I became wholly owned by a Japanese company. I own, franchise or license more than 13,000 stores in the U.S. and Canada. Who am I?
Last Week's Trivia Answer
I trace my roots back to 1886, when three brothers founded me in New Brunswick, New Jersey. I was the first company to mass-produce antiseptic surgical supplies, such as bandages and gauze -- many made from sterile cotton. I was an early advocate of higher wages for workers and a business's duty to society, launching free dental exams for workers in 1931. With a recent market value of over $350 billion, I'm a health care giant with 130,000-plus employees. After spinning off my consumer health products into a company called Kenvue, I now focus on pharmaceuticals and medical devices. Who am I? (Answer: Johnson & Johnson)
The Motley Fool Take
Value for Uncertain Times
When the stock market seems shaky, many investors shift their focus from high-flying growth stocks to undervalued stocks. A great way to invest in seemingly undervalued stocks is via the Vanguard Value ETF (ticker: VTV).
The ETF tracks the CRSP U.S. Large Cap Value Index by investing directly in its component companies. The index features stocks that have been screened using a variety of metrics -- including ratios of price to book, price to forward earnings, price to historical earnings, price to dividend and price to sales -- to focus on undervalued stocks. Investing in this ETF provides some exposure to mid-cap stocks, too.
The ETF's ultralow expense ratio (annual fee) of only 0.04% means investors pay just $4 per $10,000 they have in the ETF. Thus, the Vanguard Value ETF is one of the least expensive and most efficient ways to invest in more than 300 value stocks.
Compared to the S&P 500, the Vanguard Value ETF has less exposure to the technology and consumer discretionary sectors, and outsized exposure to financials, health care, industrials, consumer staples, energy, utilities and real estate. Many companies in these sectors pay dividends and are valued more for their current earnings than their potential growth.
The Vanguard Value ETF is chock-full of companies that can produce solid earnings even during a downturn, while supporting their growing dividend payments. (The Motley Fool owns shares of and recommends the Vanguard Value ETF.)
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