Why Defensive Stocks Aren't Safe Any More

Why Defensive Stocks Aren't Safe Any More

Nervous investors should think twice before diving into so-called defensive stocks, especially those securities with high dividends. You might end up putting more risk into your portfolio than you realize.

Stocks that have less volatility than the overall market and pay higher dividends than most other stocks are often seen as a way to reduce risk in a portfolio. Traditionally, these are found in the defensive sectors, including consumer staples, utilities and health care.

Given the state of the world, it's easy to see why investors would want to get defensive. The war in the Middle East is certainty getting hotter. Cities are under the threat of terrorist attacks, and tensions between Russia and Turkey increased when Turkey shot down a Russian warplane on the Syrian border. Meanwhile, the European economy still looks saggy and the once-fast growing Chinese economy is decelerating. And the Federal Reserve looks set to start raising the cost of borrowing money sooner rather than later.

Sectors are trading at high multiples. The problem is that "the defensives are expensive," says Ramona Persaud, portfolio manager for Fidelity Global Equity Income fund (ticker: FGILX), the Fidelity Dividend Growth fund (FDGFX) and the Fidelity Equity Income fund (FEQIX). Many of the traditional stock sectors that might once have helped reduce risk in a portfolio are trading at relatively high multiples.

She warns that investors could easily lose more money from a declining stock price than they gain from a healthy dividend.

In fact, that may already have happened to some investors. The Utilities Select Sector SPDR exchange-traded fund (XLU), which tracks a basket of utility stocks, has retreated around 10 percent this year, while the broader Standard & Poor's 500 index of major stocks is up slightly over the same time. Contrast that loss with the current 3.6 percent dividend yield on the fund. Clearly, those holding the fund since the beginning of the year would have resulted in a net loss, not including the effect of taxes.

Over the years, the Fed's low interest-rate policies forced yield-seeking investors toward dividend-paying stocks like utilities, bidding up prices and valuations, explains Jeff Carbone, senior partner and founding member of Cornerstone Financial Partners, a wealth management company in Charlotte, North Carolina.

That yield seeking effect is now happening in reverse, with investors selling their holdings in anticipation of what Carbone says is an "imminent increase" in interest rates by the Fed. To reiterate, the pullback in dividend stocks like utilities was happening before the Fed has actually done anything. That anticipation of future event is normal in the stock market.

How do you find dividend stocks now? "Let's find something with a similar yield that is growing," says Mike Boyle, head of asset management at advisory Advisors Asset Management in New York. It is better to find stocks that are growing their income and will likely use those increased earnings to boost the dividend. "Focus on areas with strong earnings and income growth, like technology," he says.

A good example of a company that is growing earnings and has a huge potential to grow its dividends is Apple (AAPL).

Using the combo approach also tilts the scales in the investor's favor in the current market. You pay a lower multiple of earnings for a company that is growing its dividends. For Persaud, the trick is buying quality companies at a bargain. "Dividend growth is just cheaper."

That's why she purchased Israeli generic drug company Teva Pharmaceutical Industries (TEVA), which she purchased at a discount relative to U.S. pharmaceutical giants Bristol Myers Squibb Co. (BMY) or Pfizer (PFE).

Know the warning signs. Whenever you invest with the expectation of receiving dividends, you need to be on the lookout for potential problems.

"Usually when the yield gets unreasonably high, that's a telltale sign something is wrong," says Eric Ervin, CEO of ETF provider Reality Shares in San Diego.

For instance, if a stock usually yields 3 percent, but suddenly shows a 6 percent dividend, then that could be a sign that investors expect the dividend to be cut in half. Again, investors discount expected future events.

You should also look to see whether the payout of dividends as a ratio of earnings is sustainable. Companies do need to retain some of their income for capital expenditures and to buy back stock. If the payout is too high for too long, then management may be stretching things too far and it could eventually result in a dividend cut.

The average payout ratio of dividends to earnings is now around 40 percent for the S&P 500, Ervin says. Normally, it's more like 50 percent, he says.

6 Things to Consider Before Paying Off a Mortgage Early

6 Things to Consider Before Paying Off a Mortgage Early

Living debt-free sounds great, and depending on where you are in life it may actually be attainable. But even if you can pay off your mortgage early, should you?

Although it may be tempting, first consider the opportunity cost of paying off your mortgage early at the expense of other goals or investment options, as well as the impact to your tax situation.

Opportunity cost. By paying off your mortgage early, you'll save on the additional interest expense that would have been incurred in your regular payments. This savings can be significant, and will increase with the prepayment amount. However, by directing excess cash towards paying down a mortgage, those funds are no longer available for investment. The lower your interest rate, the less you stand to benefit through early retirement of debt.

How can you decide whether it is best to invest excess cash or pay off your mortgage early? Consider the following example:

Suppose the stated interest rate on your mortgage is 4 percent and you are in the 28 percent federal income tax bracket. Your after-tax mortgage rate is roughly 2.9 percent, perhaps lower if you can also deduct the mortgage interest on your state income tax return. For many investors, investment portfolios are constructed using a risk tolerance that carries a much higher annualized expected investment return than 2.9 percent.

For some, the "guaranteed" 2.9 percent savings is more attractive than a higher expected market return, subject to greater volatility and risk. For those with a much higher after-tax mortgage rate, paying off a mortgage early likely becomes a more attractive option.

Here are some other considerations:

Taxes. For many, the ability to deduct mortgage interest is a key component to their tax strategy. Consider whether you will still be able to itemize deductions without mortgage interest.

Investing. Realistically consider whether you'll invest the cash that would have been directed towards paying down your mortgage or spend it. Consider direct deposits into your brokerage account or increasing your monthly 401(k) contribution in an effort to "set it and forget it."

Other needs. Aside from the ability to invest excess cash, are there any other more pressing goals on the horizon? Look at your whole financial situation including student loans, credit card debt and whether you have adequate emergency reserves.

Life stage. The decision to pay down a mortgage will vary depending on your life stage, risk tolerance and time horizon. If you're nearing retirement you may have a more conservative asset allocation, and investing the excess cash in the market may mean taking on unnecessary risk. Being debt-free may also become more important later in life.

Time horizon. If you are planning to stay in your home for the long term, it makes more sense to consider overpaying your mortgage than if you don't anticipate ever paying off the note.

As you weigh the options, set realistic expectations and ensure the proper plan is in place to achieve your objectives. Discuss the decision with your financial advisor and tax professional before committing to a strategy. As with all financial goals, it pays to be flexible. If you're still unsure which direction is best or whether you have adequate reserves, think about opening a dedicated savings account for your excess cash flows and revisit the decision in three to six months. By separating the funds, you will be less likely to spend it on daily expenses while you consider the options. 

4 Stock Sectors to Watch in 2016

4 Stock Sectors to Watch in 2016

What's the investment landscape going to look like in 2016? More of the same, but in less obvious places.

Terry Sandven, chief equity strategist with U.S. Bank Wealth Management in Minneapolis, says fundamentals remain favorable for select companies within many key sectors, especially the technology, health care, industrial and consumer categories. Energy and transportation are iffy and likely to remain so until the second half of 2016, Sandven says.

The likelihood of rising interest rates signals strengthening optimism about the U.S. economy as seen through the lens of the Federal Reserve, though most sectors will see a few standouts that will likely propel overall sector performance. "Not all companies within each sector are positioned alike," Sandven says. "Equities are entering 2016 with valuations elevated, inflation restrained, interest rates low and sentiment generally positive."

He's looking for companies within each sector with thematic appeal, such as companies that cater to a global consumer, e-commerce and an aging global population.

Broad-brush investment strategies that don't discriminate within sectors – such as index funds – are perhaps not as likely to make the most of each category's standouts, says Sandven. That's why he's a proponent of actively managed funds for the time being. Sandven expects the Standard & Poor's 500 index will hit 2,275 in 2016.

Investment professionals expect these four sectors to carry momentum into 2016:

Technology. Mobile and "Internet of Things" plays will drive wins here, Sandven says. E-commerce, cloud computing and any-time-any-place connectivity will translate to services and infrastructure that businesses and consumers buy consistently. He likes "all those areas that tend to leverage technology in how we live, work and play."

Some of the biggest names here are Alphabet (GOOG, GOOGL), with its self-driving cars and Nexus; Verizon Communications (VZ) and AT&T (T) for their expertise in connecting the world to the Internet; and Apple (AAPL) and International Business Machines Corp. (IBM), which have a partnership that allows IBM's big data and analytics to be accessible on Apple's iOS devices.

Health care. Health care is a "sector for all seasons," says Sandven, because it blends defensive and growth corporate strategies. Innovations in oncology, immunology and other treatments are poised to drive long-term performance globally. Despite some short-term volatility that probably will erupt as drug pricing settles out, "we like the longer-term profile of this sector, especially that it caters to an aging population," Sandven says.  

Western health care companies are just discovering expansion opportunities in Asia, says Andrew Stotz, an equities analyst for two decades who now heads A. Stotz Investment Research in Thailand. While many U.S. hospitals count on celebrity doctors and their referrals to drive growth, it's administrators who hold the power and drive growth in Asian systems.

As U.S. pharma, medical device and supply companies sync with the Asian model, sales are likely to accelerate. "These health care systems are run so much more efficiently that investors will get much more," Stotz says. "Asset utilization is massive."

Housing and real estate. Housing is stable, wages are improving and interest rates are low. Consumers can borrow again – and that could be good news for mortgage lenders, even if the Fed orders an increase in interest rates, as expected.

Real estate investment trusts are well-positioned for 2016, says Stotz, considering that millennials are largely ownership-adverse. "We have the metrics now to prove that individual houses are not great investments, and millennials want mobility," he says.

Real estate investment trusts and the property management infrastructure are accelerating their investment in automated tracking, diagnostic and management systems. New buildings can deliver renters rich lifestyle amenities and personal service with less overhead cost than ever, sending substantial returns to investors, Stotz says.

Andrew Melnick, chief investment strategist at BPV Capital Management, notes that real estate investments in tech capitals are doing especially well. While some millennials are edging into homeownership, those in the service and civil service sectors – teachers, police officers, government workers and hospitality and health care employees – need affordable housing in notoriously expensive locales. Rental communities with smaller units and amenities scaled accordingly deliver good returns because they are nearly always full, he says.

Consumer. The consumer sector areas that are thriving support experiences, says Melnick, as opposed to basic goods. That's why several analysts say athletic gear and clothes will outperform basics and fashion clothing.

Melnick also likes categories that support baby boomers who insist that 70 is the new 50. Cruises, soft adventure tour companies, airlines, athletic clubs, related services such as physical therapy, and health care systems that innovate new modes of wellness will win sustained support, he says. The best performers, according to Melnick: "Athletic equipment that adjusts with boomers' needs." 

Why Payment Protection Insurance Is a Growing Necessity for Investors

Why Payment Protection Insurance Is a Growing Necessity for Investors

Nobody questions the need for health or auto insurance, where the chances of a costly mishap can be relatively high. Few question the need for homeowners insurance. Life and mortgage insurance have significant utility for anyone with a family or a mortgage.

Virtually every carrier presents these products as being necessary and useful. Yet there is another insurance product that few people know about, is rarely discussed and which some experts say is critical for the protection of individual investors' portfolios.

Tom Keepers, executive vice president of the Consumer Credit Industry Association, believes credit insurance and debt protection, also known as payment protection, should be integrated as part of a household's overall financial plan.

"We protect our lives, health, autos and homes, yet our financial well-being often depends on making good with our creditors," he says. "Not only is credit access essential to Americans, but credit scores are the beating heart of our financial bloodstream. Why aren't we protecting this vital organ with cost-effective, easily accessible protection products?"

Because the products are available at the point of loan and often do not require underwriting, Keepers says they can form the core of financial protection or be inserted into existing financial plans.

"Americans are underinsured. In 2013, some 3 in 10 Americans lacked life insurance, worsening to 4 in 10 this year," says Dick Williams, president and CEO of The Plateau Group, an insurance holding company in Crossville, Tennessee. "Typical coverage provides protection for life, disability and/or involuntary unemployment that helps pay debts. But if one's health is such that life insurance is not affordable, or one's occupation does not lend itself to affordable disability coverage, payment protection fills the gap."

When is payment protection insurance needed? "The majority of Americans have little margin of error should they have a financial mishap," Williams says. "More than half of Americans have less than one month worth of savings, and for the past quarter-century, half see a significant decline of income at some point in their lives."

For those who aren't struggling as much but who have an investment portfolio and long-term goals, any hiccup could force an alteration in that plan, including the sale of securities. That could generate capital gains taxes.

Meanwhile, the labor force participation rate is at a 40-year low. The risk of unemployment is growing, along with the risk of not being able to pay creditors. The New York Federal Reserve reports that the American consumer is taking on more credit, fostering the need for payment protection.

"Suppose a primary breadwinner takes out a $20,000 loan for a car so she has a reliable vehicle to commute to work," Williams says. "If, God forbid, she becomes disabled and does not have payment protection on the loan, there's a real possibility she will default, her credit history will be damaged and the family's livelihood will suffer. The family would likely be faced with increased medical expenses and loss of income during her disability, increasing the likelihood of loan default."

In that scenario, the breadwinner would be able to care for her family if she has credit insurance or debt protection. "The car payments will be made, her credit will remain clean and she will be able to keep the car," he says.

Lift Your Returns With a Barbell Strategy

Lift Your Returns With a Barbell Strategy

Here's a puzzle: Should you invest in last year's beaten-down stocks, or should you stick with the winners and put even more money there?

The answer appears to be yes, do both.

That conclusion is based on an analysis conducted by S&P Capital IQ conducted exclusively for U.S. News & World Report. It looked at 25 years of data going back to 1990 and found that investing in last year's 10 worst and 10 best-performing subsectors of the Standard & Poor's 500 index is historically a winning strategy.

"It's a barbell approach," says Sam Stovall, equity strategist at S&P Capital IQ. It gets its name from the idea that barbells have all the weight at opposite ends of the lifting bar.

In terms of strategy, you play both extremes by sticking with the winners and by grabbing those sectors that have been squashed.

For instance, if you had invested in the prior year's 10 best subsectors every year since 1991, you would have averaged 14.8 percent returns per year excluding dividends. Your performance would have beaten the S&P 500 68 percent of the time; that index rose an average of 9.2 percent per year over the period.

The results of a similar strategy for the worst 10 stock subsectors would have yielded average annual returns of 16.3 percent excluding dividends, which also beat the S&P 500 68 percent of the time

Better still, there were only two years in the sample period when both strategies did not beat the index of major stocks – 1997 and 2008. Those years coincided with the Asian contagion and the subprime meltdown.

On average, the barbell strategy beats the broad market, and it is rare for both halves of the equation to do worse than the index in any given year.

The theory behind buying more of the winners is based on behavioral finance: People brag about their winnings and others buy into the momentum. "How many people whose stock hit a 52-week high are upset?" Stovall says. 

Buying the beaten-up sectors relies on something called mean reversion, whereby eventually theperformance of stocks tends to normalize over time around an average. Even when a sector is down a lot, it tends to catch up eventually. "It also assumes that those bottom-performing sectors aren't headed into oblivion," says Vinny Catalano, global investment strategist at Blue Marble Research in Maspeth, New York.

But investors beware: Human nature being what it is, things can get overdone with too much enthusiasm at the top and too much fear at the bottom.

If you decide to follow the strategy for 2016, the first thing to do is identify the best and worst subsectors. The S&P analysis finds that best subsectors so far were automotive retail, building products, construction materials, footwear, home entertainment software, home improvement retail, Internet retail, Internet software, tires/rubber and oil/gas refining and marketing.

The worst were agricultural products, aluminum, casinos/gaming, coal/fuels, department stores, diversified metals/mining, independent power producers, motorcycle makers, oil/gas drilling and oil/gas storage and transport.

For some subsectors you may be able to find an exchange-traded fund that is tailored for the subsector. For instance, the PowerShares Dynamic Building and Construction ETF (ticker: PKB) tracks a basket of stocks in the construction business, and the SPDR S&P Metals and Mining ETF (XME) tracks metals and mining stocks.

For other areas, such as motorcycles and tire manufacturers, you may need to work a little harder and construct baskets of stocks yourself.

Any investment strategy carries some risk. Take beaten-down stocks, for instance. "A stock that is down 80 percent can be cut in half again," says Michael Batnick, director of research at Ritholtz Wealth Management.

There can also be problems with the actual companies themselves, says Steven Weiting, global chief investment strategist Citi Private Bank in New York. The energy sector has been rocked by falling oil prices, so Weiting says investors should see what has changed in the credit profile of individual stocks before opening new positions. Will beleaguered oil companies still be able to borrow as cheaply as they used to?

As anyone who witnessed the tech bubble at the turn of the millennium can attest, what goes up can quite easily come down again. It still holds that stocks that have done well and continue rising eventually can get too pricey.

For these reasons, it may make sense to limit your exposure to this strategy to a fixed percentage of your portfolio. A good starting figure might be 10 percent of your overall investments. That way, even if the strategy loses 25 percent in a year, it's still only 2.5 percent of the whole.

Best Bank Stocks to Buy in 2016

Best Bank Stocks to Buy in 2016

With the Federal Reserve all but certain to start a slow sequence of interest rate hikes next week, investors are sure to wonder – which bank stocks stand to do best in 2016? 

No one knows for sure, of course, but a few big names look promising. Many analysts think prospects for the banking sector are good, though not necessarily stupendous.

"U.S. banks have outperformed the broader U.S. equity market in 2015. Credit quality has been excellent, and investors once again are optimistic about the prospect of rising interest rates and their impact on the banking sector," says Morningstar analyst Robert Goldsborough, writing in an analysis of SPDR S&P Bank ETF (ticker: KBE), an exchange-traded fund that tracks U.S. banks. "Banks also have enjoyed relative calm, with no bad news, no major credit issues in energy and most financial crisis-related settlements concluded."

Rising interest rates could lift bank revenues and earnings, some analysts say, though they caution against expecting too much given the Fed's plan to raise rates very, very gradually. A strengthening economy, strong job creation and falling unemployment should minimize default rates on loans. And improving economic conditions should raise demand for mortgages, car loans and other consumer loans.

At the same time, some banks have struggled to pass the stress tests imposed after the crisis, and satisfying tougher post-crisis regulations is costly. So a bet on banking is, well, a bet. And the good news and expectations may already be reflected in bank stock prices.

Good performance isn't the only way to make money on bank stocks. Christopher Marinac, director of research at FIG Partners LLC, a research, market making and investment-banking firm, believes that mergers and acquisitions among small banks could produce some nice gains for investors in 2016.

"The average premium to current price in a merger transaction is over 25 percent, which is enticing," he says. "But investors have to be patient and careful. We advocate buying banks on their fundamental merits and not just for their M&A franchise potential."

Investors, then, might be wise to keep alert for takeover murmurs.

Here are the best bank stocks to buy in 2016:

Wells Fargo & Co. (WFC). The positive view of Wells Fargo boils down to something quite simple: It dominates its market. "We estimate that more than one-third of the bank's deposits come from markets in which Wells Fargo is the pre-eminent player, and more than two-thirds are gathered in markets in which the company ranks among the top three," Morningstar analyst Jim Sinegal writes in a report. The bank has steady management, good cost control and close relations with customers, he says. If you want a good reference, note that Wells Fargo is one of the largest holdings of Warren Buffett'sBerkshire Hathaway. (BRK.A, BRK.B)

Bank of America Corp. (BAC). Size and dominance also make Bank of America attractive, which put its crisis-era problems behind it, Sinegal says. Like Wells Fargo, Bank of America is strong at getting customers to try other products and services.

Citigroup (C). Citigroup had more than its share of problems from the financial crisis, Sinegal says. "Yet we believe Citigroup's progress over the past five years is underappreciated. The bank has raised capital, shed assets and bulked up its board of directors and management team with experienced bankers."

Bank of New York Mellon Corp. (BK). Another big name drawing attention is Bank of New York Mellon, which specializes in holding assets for institutional clients, such as pensions and mutual funds. Some activist investors have been gathering up shares and pressing for improvements to drive up the stock. While its future is somewhat iffy, buying now would be a chance to ride the coattails of activist crowd pressing for a turnaround.

The Pros and Cons of Social Investing

The Pros and Cons of Social Investing

So you like your investments just fine. But here's the big-money, big-data, 2-ton terabyte question: How do your followers on social media like them? Or have they "liked" them, to borrow from Facebook parlance?

Perhaps the even more relevant question – at least for those new to investment – is how much do you like someone else's financial strategy? For in the omnipresent world of social media, investment marks the latest segment where people from all corners gather to share their thoughts – though in this case, it's about portfolios as opposed to pet photos.

"Some investment and retirement firms have already built online communities within their authenticated space to enable similar clients and participants to discuss issues among themselves and to pose questions," says Jill Jacques, vice president of North Highland, an Atlanta-based consulting firm. "Other firms are pursuing bolt-on technology solutions for their existing online capabilities to enable similar discussions."

Venture further out into the nexus of cyberspace and the financial space, and you'll find Web portals solely dedicated to networking investors. Openfolio is one example; its self-stated mission is to bring the "openness, connectivity [and] collective intelligence to the world of personal investing."

Yet as any technophile will tell you, the proof lies in the numbers, and Openfolio's latest stats are quite impressive. "November was a good month," says David Ma, head of research at the free investment platform. "Seventy percent of investors on Openfolio managed to make money," up an average of 0.6 percent from the month before. Yet that also means 30 percent of investors lost money (though for half of them, it was a scant 1.25 percent or less).

Launched by former Wall Street bond traders in August 2014, Openfolio seeks to bring the open culture of a professional trading room to retail investors. Or if you prefer, think of it as a site where people share investment knowledge just as they would reviews on Foursquare, TripAdvisor (ticker: TRIP) and Yelp (YELP).

Want even more social media wind in your e-sails? Openfolio also connects with Twitter (TWTR) and Facebook (FB) and boasts one of the first financial apps to land on the Apple (AAPL) Watch.

Indeed, groupthink represents a legitimate concern for such sites. "Simply following what other investors on the platform are trading could be a recipe for disaster," says Shomari Hearn, a vice president with Palisades Hudson Financial Group, based in Fort Lauderdale, Florida. "Other investors may not have the same goals and investment objectives as your own. … There's also the concern that certain investors will use these platforms for nefarious purposes, such as for pump-and-dump schemes."

Disclosures are important, says Gary Tsarsis, a clinical assistant professor at the University of Pittsburgh's Katz Graduate School of Business. "The first set of kinks that needs to be worked out includes full disclosure of any writer of investment advice. Do they have a derivative position in the asset? Are they short? The second is the relationship they have with any paid sponsors."

But there's also a clear sense that some on the Silicon Valley side see social investment hubs as a fabulous buy themselves. Consider Tip'd Off, based in Alphabet's (GOOD, GOOGL) hometown of Mountain View, California. Tip'd Off raised $1.35 million and had a waiting list of more than 5,000 people in the late spring before it was acquired for an undisclosed sum.

Digital-native millennials – the logical target of social investing – have every reason to turn away fromconventional investing approaches, says Rahul Sethuram, one of Tip'd Off's co-founders.

"Millennials grew up in a different financial world than the baby boomers, who currently dominate the stock market," Sethuram says. "The dot-com bubble. The housing bubble. Occupy Wall Street. The Great Recession. Big bank failures." Social investing, he says, will assist market greenhorns in the same way that Koosh Saxena once did for him. He became one of Tip'd Off's co-founders, too.

"Koosh kept a Google spreadsheet where he would manually input his trades and watch list of stocks," Sethuram says. "He began to share this document with his friends to collaborate on ideas and share tips. I asked Koosh to let me know when he made updates to the sheet so I could see when he made a new trade – and that's where we got the idea for Tip'd Off."

That said, the social investment idea isn't going to be for everyone – including investment rock stars wary of attracting a crush of pesky groupies.

"Twitter is very public, and some investors, particularly angels, will not be tweeting about their investments," says Afif Khoury, founder and CEO of SOCi, an enterprise social media platform based in San Diego. "By nature, these are very private people. So, mainstream social media networks aren't their primary sources for investing news and opportunities – for the most part, they stay closely within their networks and circles."

But assuming someone behind the velvet rope creates an exclusive portal – a members-only chat room, for example – you could expect lots of instant messages would fly back and forth. "The more privacy and segmentation a social network offers, the more likely you'll find investors there," Khoury says.

And with the recent change in crowdfunding regulations approved by the U.S. Securities and Exchange Commission, the act of creating new companies will go hand-in-hand with sharing intelligence on them via social media exchanges.

"I expect the number of social trading platforms and networks will continue to grow, especially with the recent adoption of rules that will allow startup companies to sell private stock to retail and nonaccredited investors through crowdfunding-style portals," Hearn says.

So what does this mean in the end? It makes sense, experts conclude, for smart investors who are testing the winds to go social – without going postal.

"Social analysis is just one tool in an investor's tool belt," says Kunal Vaed, a senior vice president and head of digital channels at ETrade. "It should not be used in a vacuum."