Topic: Value Stocks

7 ways to make the most secure investments for your diversified portfolio

Secure investments will be an important part of your portfolio if you select them with our advice in mind

We’ve long recommended strategies for the most secure investments in our newsletters and investment services. They can help you cut risk—and increase profits—in your stock portfolio.

The safest investments—whether they are stocks, bonds, mutual funds or exchange-traded funds (ETFs)—come with a reasonably high degree of stability, and lower risk.


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7 tips for picking secure investments

  1. Think like a portfolio manager: As part of their stock market research, portfolio managers gather information from companies, industry studies and other sources. A good portfolio manager then tries to build their client a portfolio that makes money if things go well, but won’t lose too much if the opinions turn out to be faulty, as often happens.
  2. Well-established companies are key to profitable and secure investments: Instead of moving between extremes of risk, we continue to think investors will profit most—and with the least risk—by buying shares of well-established companies with strong business prospects and strong positions in healthy industries.

    That’s not to say that there won’t be surprises that affect every company in a particular industry. But well-established, safety-conscious stocks have the asset size and the financial clout—including solid balance sheets and strong cash flow—to weather market downturns or changing industry conditions.

  3. Spread your money out across most, if not all, of the five main economic sectors (Resources & Commodities, Finance, Manufacturing & Industry, Utilities and Consumer): That way, you automatically diversify, and diversification is a key component of secure investments. You also cut your risk of loading up on a company or industry that’s about to slump.
  4. Look beyond a company’s share price: It’s a mistake to base your decision to buy or sell a stock on past stock-price performance alone. Rising and falling trends come in many shapes and sizes, depending on what’s going on in a company, its industry and the world.

    A stock never gets so high that it can’t keep rising, or so low that it can’t keep falling. That’s why you have to look beyond price changes and focus on investment quality when deciding whether to buy or sell.

  5. Resist the temptation to copy prominent investors: Sometimes you’ll hear that a stock is a good buy because some prominent investor (a company, family or individual) has a stake in it.

    However, it’s important to remember that prominent investors don’t expect to profit in every investment they make. For example, sometimes they invest for strategic or political reasons, rather than profit.

    To profit by copying the decisions of prominent investors, you have to copy what they do with the bulk of their money, not with token amounts of it. That’s hard to do, since prominent investors often keep their best investments hidden until they want to sell.

  6. Sell if you doubt the integrity of insiders: It’s always a good safe investing strategy to sell your shares in a company if you have any doubts about the integrity of the people in charge. In other words, if you think a company is run by crooks, you should sell right away, no matter how attractive it seems as an investment. There are no limits to the ways in which unscrupulous operators can and will cheat you.

    At the same time, to profit from this safe investing rule—that is, to use it to enhance your long-term returns, not just avoid loss—you need to apply it in a moderate fashion. You need to distinguish between lack of integrity on the one hand, and naivete or poor judgment on the other.

    Many public companies eventually run afoul of tax rules or regulatory decisions, for instance. If you take that as a sign of low integrity, you can wind up selling solid investments at market lows.

  7. Give your secure investments time to pay off: Resist the ever-present urge to buy and sell. A sound portfolio, built through careful and safe investing, needs surprisingly few changes over the years, so you have fewer occasions to make costly mistakes.

Do you own any secure investments? Why do you consider them to be safe? Share your thoughts with us in the comments.

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