A 5 Point Test for Every Investment Opportunity

Keep these tips in mind as you screen for candidates

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Once they have a short list of candidates our Money Forever team analyzes them using the following criteria. Some of these issues would never have been considered as recently as 2007, but you need to apply each of them to every stock, bond, ETF, mutual fund, or any other investment for that matter.

  1. Is this a solid company or investment vehicle?  The vast majority of our subscribers are not afforded the opportunity for a do over. Investing in safe companies, or investment vehicles, is a must. This also applies to the picks in the speculative section of our portfolio.
  2. Does it provide good income?  In today’s low yield environment for CD’s and treasuries, every investment is looked at for some yield. While some may be very low, or zero, we may ultimately recommend them because we think the return will justify the investment down the road.
  3. Is there good opportunity for appreciation?  While that might sound like a no-brainer, it must be looked at. In many cases there are good solid companies paying dividends like clockwork; yet their stock prices barely keep up with inflation. There are times we have chosen between two candidates, one paying a slightly smaller dividend but the company is growing, instead of a utility or something similar that may have had a slightly higher dividend.
    In some of the latter cases their stock prices are more interest rate sensitive as opposed to that of a growing company. If interest rates started to rise they could see a quick decline in their stock prices. This has become a greater concern lately: if you have utility stocks or funds in your portfolio then right now is the time to fully re-evaluate them.
  4. Does it protect against inflation?  This is the 800-pound gorilla in the room. When folks ask me if I am one of the inflation folks preaching gloom and doom, I answer them with a question.  Name one fiat currency in history where the government has resorted to paying their bills by massively creating money out of thin air that has not eventually gone through high inflation and collapsed?  I can’t think of one; however I can name Austria, Argentina, Brazil, Hungary, Mexico, Zimbabwe and the Weimar Republic (Germany) off the top of my head that had those experiences. And for the citizens of those countries it was catastrophic.
    While I cannot predict the probability of high or hyperinflation; I do know if it does occur, many seniors and savers will be clobbered if their life savings are all invested in US dollars.
    We have never had a fire in our home yet we buy fire insurance because a fire would wipe out a good bit of our net worth if we did. I look at factoring in the possibility of an investment being an inflation hedge as portfolio insurance. I don’t want my entire portfolio wiped out any more than I do a fire.
  5. Is it easily reversible?  As a person who taught the subject of Problem Solving, I can tell you one of the criteria you use in “decision analysis” is: can it be reversed if you make a mistake?  That is one reason we set stop losses on many of the highly-traded stocks in our portfolio. It’s also one of the reasons that at our age we don’t mess with real estate investing. What about REITs or real estate ETFs? Sure, we’ll consider them, but not actual property, not anymore.
    In 2007 we would have thought little about buying a 6%, five-year CD. Today, I would not recommend buying a 1.3% CD for the same period. It is a loser from the start and could get worse. Also, there’s no way to easily get out of it without suffering major penalties.

The rules are changing. It is a given that when the negotiations are finalized by our government to avert yet another “fiscal cliff” or “debt ceiling” or whatever the financial crisis du jour, we are going to see huge tax increases, not just the rates but others like tax hikes on dividends (again), capital gains and the like. In addition, there are rumors of eliminating the deduction for mortgage interest, which would have a huge effect on the already challenged building industry. And one notable Congressman from New York used the discussion on taxing dividends to question the deductibility of donations to churches, synagogues and other places of worship. Can you imagine that?

The old line, “Sell in May and go away”; forget that. Besides, May was a few months ago.  For the individual investor, tapping the proper resources and remaining vigilance are paramount; whether it’s a broker, money manager, newsletters or research tools. Understand that we are now in a new version of investing; consider it “Investing 2013,” with the release of “Investing 2014” right around the corner. Our program will need many updates to keep up with the current changes in order to survive.

  • Understand what is going on in today’s investment world.
  • Use your best research and resources that are available to you.
  • Work harder and smarter at managing your nest egg than ever before.
  • Commit the time necessary to protect your life savings.

It’s time to take responsibility for our own finances and move forward. Certainly the stakes are high, and we are all stakeholders; it is our money… and we must ensure that it lasts a lifetime.

With that in mind, the surest way to make your money last as long as you need it to is to have a steady stream of income, especially when if you’re no longer working. I hit upon this a few times earlier in this article. We have a new monthly income plan that’s taken Casey Research readers by storm. We’ve recently put together a short presentation on how it works, who it’s for, and how to get started. The best part is that you can start right now for free. Click here for more.


Article printed from InvestorPlace Media, http://investorplace.com/2013/08/5-point-test-for-every-investment-opportunity/.

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