• 556 days Will The ECB Continue To Hike Rates?
  • 557 days Forbes: Aramco Remains Largest Company In The Middle East
  • 558 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 958 days Could Crypto Overtake Traditional Investment?
  • 963 days Americans Still Quitting Jobs At Record Pace
  • 965 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 968 days Is The Dollar Too Strong?
  • 968 days Big Tech Disappoints Investors on Earnings Calls
  • 969 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 971 days China Is Quietly Trying To Distance Itself From Russia
  • 971 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 975 days Crypto Investors Won Big In 2021
  • 975 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 976 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 978 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 979 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 982 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 983 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 983 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 985 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Five Simple Rules to Evolve Past the Hot-Stock List

If you're a typical small-time investor, chances are you prefer to let a team of analysts fuss about such irksome things as correlation and beta. Maybe you've bought a stock because your brother-in-law gave you a hot tip, maybe you heard something about it on a financial news show, or maybe you just loved the company's product.

Friends often ask me for "hot stock tips"-which is like walking up to someone at the craps table and asking what number to bet on. An accomplished craps player will have position limits, stop losses, income targets, and an overall strategy that does not hinge on one roll of the dice. You need an overall strategy long before you put money down.

So, what do I tell those friends asking for hot stock tips? Well, that they can retire rich with a 50-20-30 portfolio:

  • Stocks. 50% in solid, diversified stocks providing healthy dividends and appreciation.

  • High Yield. 20% in high-yield, dividend-paying investments coupled with appropriate safety measures. These holdings are bought for yield; any appreciation is a nice bonus.

  • Stable Income. 30% in conservative, stable income vehicles.

Unless you're starting entirely from scratch, you should review your current portfolio allocations, identify where you're over- or underallocated, and then look for investments to fill those holes. In our portfolio here at Miller's Money Forever, we separate our recommendations into Stocks, High Yield, and Stable Income to help you do just that.


The Art of the Pick

By the time an investment lands in our portfolio, we've already run it through our Five-Point Balancing Test. When your boasting brother-in-law tempts you with a "can't-miss opportunity" or some pundit touts a hot tech company on television, you can come back to these five points, again and again.

  1. Is it a solid company or investment vehicle? Investing your retirement money safely is a must. How do you know if a company is solid? Take the time to validate essential company information, particularly when the recommendation comes from a source with questionable motivation.

  2. Does it provide good income? A good stock combines a robust dividend and appreciation potential.

  3. Is there a good chance for appreciation? There are two types of appreciating stocks: those that rise because of general market conditions and those that rise further because of the way management runs the business. We want both.

  4. Does it protect against inflation? High inflation is one of the biggest enemies of a retirement portfolio.

  5. Is it easily reversible? Ask yourself, "Can I quickly and easily reverse this investment if something unexpected occurs?" The ability to liquidate inexpensively is critical to correcting errors.


Marking the Bull's-Eye So You Can Hit It

It's worthwhile to write down your goal-including an income target and the price at which you'll sell if things head south-with every investment. After all, if you can't see the bull's-eye, how will you know if you've hit it?

Buying any investment because a trusted advisor, newsletter, or pundit recommended it is not a good enough reason. Buying because your portfolio has a hole, you understand the company, the investment vehicle, the risks, and the potential is.

Remember, retiring rich means having enough money to enjoy your lifestyle without money worries. Do your homework on every investment and you'll make that pleasant thought your life's reality.

 


Miller's Money Weekly Sign up here to receive it every Thursday.

The article 5 Simple Rules to Evolve Past the Hot-Stock List was originally published at millersmoney.com

 

Back to homepage

Leave a comment

Leave a comment