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Ask the Fool: No right number

Q: What's the best number of shares of a stock to own? - C.W., Somers, Wisconsin

A: Don't think in terms of the number of shares. Think instead of their total value. You might have 500 shares of a $10 stock, worth $5,000, and 80 shares of a $200 stock, worth $16,000. Focus on the percentage of your portfolio that each stock represents. In this example, the 500 shares represent a much smaller chunk of your portfolio than the 80 shares.

Don't let any holding grow too big. If one stock represents 50 percent of your entire portfolio, for example, that's very risky. If it falls in value significantly, your portfolio will take a huge hit. If you hold many dozens of stocks, though, that's not ideal, either. If a stock that represents just 1 percent of your portfolio doubles or triples, its overall effect will be small.

Most people might aim to hold between eight and 20 stocks, depending on their confidence. Park your money in only your best ideas. You want some diversification, but you don't want to own more companies than you can easily keep up with.

If that seems like too much work, it's a fine idea to consider index funds instead. Three inexpensive, broad-market ones are the SPDR S&P 500 ETF (SPY), Vanguard Total Stock Market ETF (VTI) and Vanguard Total World Stock ETF (VT). Learn more at fool.com/mutualfunds/mutualfunds.htm and morningstar.com.

Q: How many mutual funds are there? - D.Y., McKean, Pennsylvania

A: According to the Investment Company Institute, at the end of 2014, there were 9,260 mutual funds in existence, making it easy to understand why some people get confused looking for good ones. (We offer some tips and insights at fool.com/mutualfunds/mutualfunds.htm.)

Fool's School: Save Some Health Care Dollars

According to research by Aon Hewitt, worker out-of-pocket health care costs have more than doubled since 2009, far outpacing inflation and putting significant pressure on American households. Here are some strategies to lower your health care costs.

• Find the best-value health plan. An HMO may meet your needs while costing less than your current plan. (High-deductible plans are great for many young and healthy people, offering much lower premiums.) Once you have your plan, use it. Regular checkups can catch problems before they get dangerous or costly.

• A high-deductible plan may let you set up a Health Savings Account (HSA), where you sock away tax-deductible dollars that will grow tax-free until spent on qualifying health care expenses. If you don't qualify for that, look into Flexible Spending Accounts (FSAs), which are similar, but generally require you to use up the cash you put into them each year - or lose it. These accounts can help you save hundreds of dollars per year in taxes.

• Get the best prices on prescriptions. Pharmacy prices can differ significantly (and mail-order costs are often lower), so shop around. Ask your doctor if generic versions are available.

• Coordinate health insurance benefits with your working spouse. Opting out of one plan and choosing the family option on another might save you money.

• If you incur hefty medical expenses in one year, those that exceed 7.5 percent of your adjusted gross income (AGI) are often deductible on your federal tax return (and your state laws may be even more generous). Consult IRS Publication 502 or a tax pro to learn more.

• Take advantage of free and discounted services offered by your health plan. Many will subsidize flu shots, gym memberships, nutrition or smoking cessation classes, and other preventive care.

• Eat healthy foods and exercise. Healthier people are likely to face lower health care costs throughout their lives.

• Finally, review bills from hospitals and doctors closely, as they often contain errors.

My Dumbest Investment: Losers Average Losers

I always like to say that my best trade ever was selling Enron at about $29 per share. Therefore, one of the worst was buying it at about $60. At the time, I was looking for exposure to energy, so I bought Exxon Mobil due to its sheer size and scope, and Enron because it was a creative innovator. Little did I know how creative!

When word first came out that Enron was conducting transactions with shell companies it had set up, details were sketchy, but I decided to sell. One mistake I managed to avoid at that time was continuing to buy more shares of Enron as the stock dropped from $60 to $50 to $40 to ... well, you know.

For once I heeded the Paul Tudor Jones saying: "Losers average losers." Instead of saying, "If I liked it at $60, I must love it at $40," I asked myself, "If I liked it at $60, and now it's at $40, what did I overlook?" As familiar as I am with that principle, I have had to learn it the hard way too many times. - D.J., Stamford, Connecticut

The Fool responds: That saying is meant to counter the strategy of "averaging down," where one buys more of a falling stock, thinking it's more of a bargain. Enron was indeed a criminal disaster, and you were wise to get out when you did.

Foolish Trivia: Name That Company

I trace my roots back to an insurance company in Hartford, Connecticut, in 1850. I entered health insurance in 1899 and auto coverage in 1907. I appointed my first female officer in 1926 and insured the Manhattan Project in 1944. Today I'm a premier health insurer, serving about 46 million people with offerings that include medical, pharmacy, dental, behavioral health, group life and disability plans, as well as Medicaid health care management services, workers' compensation administrative services and health information technology. I'm buying Humana for about $37 billion. My name was inspired by a famous volcano. Who am I?

Last Week's Trivia Answer

I was formed back in 1906, when the president of a bank joined forces with the Pensacola Advertising Co., which prepared posters for an opera house. The introduction of the Ford Model T two years later was good for business. During World War II, I advertised war bonds, among other things. Today, based in Louisiana, I'm one of North America's biggest outdoor advertising companies, with more than 144,000 billboard faces, 130,000-plus interstate logo signs and 40,000-plus transit and airport displays. I even have more than 2,000 digital billboards. My market value tops $5 billion. Who am I? (Answer: Lamar Advertising)

The Motley Fool Take: Cisco: A Growing Story

Networking giant Cisco Systems (Nasdaq: CSCO) is often considered a mature and low-growth tech company. However, its stock has outpaced the S&P 500 over the past year. In its last quarter, Cisco beat analysts' estimates on both its top and bottom lines. Revenue rose 3.6 percent annually to $12.8 billion, while net income improved 6.2 percent to $3 billion.

There's a lot more to like about Cisco. For starters, its product sales are improving, despite competitors offering cheaper wares. It has been making strategic deals to further its growth, such as buying cybersecurity companies Sourcefire, OpenDNS and Pawaa. With tens of billions in cash and equivalents in its coffers, it's poised to make other smart buys.

Management is "very bullish" regarding Cisco's security portfolio, which can help it transition to higher-margin offerings, with its CFO noting:

"In security this quarter, we saw the acceleration in the shift from hardware to software. Our customers are rapidly adopting our subscription-based and software offerings, which is helping us build a greater mix of recurring revenue. This transition is accelerating and will remain a focus for us going forward."

Then there's Cisco's dividend, which has more than tripled over the past four years and which recently yielded 3.2 percent. Investors seeking both income and growth would do well to give Cisco Systems a closer look. (The Motley Fool has recommended Cisco.)

© 2015 THE MOTLEY FOOL

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