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About Jim Walker

Jim Walker has been a member since November 8th 2010, and has created 791 posts from scratch.

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Low Risk High Return Investments

You invest for two reasons. First of all, you want to put money aside for some future need instead of immediately spending it. Secondly, you want that money to make money over the years. You obviously don’t want to get into dumb investments and lose your invested money or you would have had a better time spending it! And, because there are things you want to do with that money eventually, you would prefer to see a healthy return on that invested capital. Many investors choose to split their investments into those with more growth potential but not a lot of safety and those with lower growth prospects but a lot of safety. The ideal portfolio contains low risk high return investments that both safety and growth.

Lowest Risk Investments

Some time ago we wrote about how to invest without losing any money.

Yes, there are ways that you can do this. You will have to settle for lower returns, but for a person nearing retirement, for example, this is a safe way to preserve capital and see and earn a little extra as well. These are the four categories we listed with the addition of dividend stocks.

Bank deposits with Federal Deposit Insurance
US Treasury Bills, Notes, and Bonds
Investment Grade AAA and AA Bonds
Long term value investing, intrinsic value including high-value dividend stocks

Bank Deposits with Federal Deposit Insurance

Every time that we write something about how to start investing, we note that your first task is paying off the credit cards and putting enough money in the bank to cover several months of expenses. This is a great idea at any stage of your investing career. And, bank deposits are covered by federal deposit insurance. According to the FCIC, you get $250,000 of insurance for each deposit category.

Single accounts (accounts not falling into any other category)
Certain retirement accounts (including Individual Retirement Accounts (IRAs))
Joint accounts (accounts with more than one owner with equal rights to withdraw)
Revocable trust accounts (containing the words “Payable on death”, “In trust for”, etc.)
Irrevocable trust accounts
Employee Benefit Plan accounts (deposits of a pension plan)
Corporation/Partnership/Unincorporated Association accounts
Government accounts

And, this insurance is good for each bank at which you have deposits.
(Wikipedia, Federal Deposit Insurance Corporation)

US Treasury Bills, Notes, and Bonds

Interest rates have been historically low ever since the Financial Crisis. And, the Fed may again lower rates. Nevertheless, the next safest investments, after your bank deposits, are US Treasuries. Bonds mature in 30 years. Notes mature in two to ten years. Bills mature in a year or less. Any of these, when held to maturity, is about as safe an investment as you can make. As with your bank CDs, these are for absolute security and for money that you will need in a few years.

AA and AAA Bonds

There are only two US companies these days that have AAA bonds. They are Microsoft and Johnson and Johnson. Both of these are very solid companies that are leaders in their fields. As with US Treasuries, the best way to guarantee safety is to purchase one of these bonds and hold it to maturity. Of course, if interest rates fall, you can sell the bond for a higher price, but what do you invest in then?

There are a lot more AA bonds available and many are nearly as secure and the AAA ones. They typically have a little bit higher return as well.

Microsoft AAA bonds are low risk high return investments
Invest in Microsoft AAA Bonds

Stocks Chosen Using the Intrinsic Value Calculation

The concept of intrinsic stock value goes back more than 80 years to the era following the Great Depression. The first part of this approach is that you will select investments with the potential for excellent cash flow and thus stock appreciation. If they are dividend stocks, so much the better! The second part is that you will only purchase these investments when they are underpriced by the market and not when they are overpriced. Thus, you will be making low risk high return investments. Read our article about intrinsic stock value to get you started in this direction. The reason to include dividend stocks in this grouping is that many have excellent intrinsic value and when you use dividend reinvestment plans, you bypass the broker and don’t pay any commissions on reinvested dividends or on new stock purchases.

Investing in Your Home

The Federal tax deduction for mortgage interest makes investing in your home a sweetheart deal that no one should pass up. However, as many learned to their dismay a decade ago, you need to look at the market, interest rates, resale value, and the stability of your employment. Here is also where having enough money in the bank to cover expenses, like your mortgage, for a few months is so important. But, the bottom line is that you want your monthly payment to be going toward creating long term value for you and your family and not for the person from whom you are renting!

Tax-Deferred Investments

IRAs and 401 Ks are excellent ways to get low risk high return investments. You can choose investment vehicles with lower risk because of the spectacular advantage of not having to pay taxes on dividends, capital gains and the rest during the time your retirement investment is within its plan.

Investing in What You Know and Understand

No less of an authority than Warren Buffett, one of the outstanding investors of all time, only invests in companies when he understands their business plan and how that business plan will make money over the years.

None of us are necessarily the next Warren Buffett, but we all have areas of expertise. This can come from our education and work or from other life experiences. The point is that computer techies are more likely to spot the next Microsoft or Apple and folks in the medical profession are more likely to recognize a good opportunity in the medical products or services sector. The list obviously gets quite long when you look at all combinations of experience and study. The point is that you can find higher returns on your investments by investing in things that you know about and reduce your risk as well.

Is Ford a Good or a Bad Investment?

Henry Ford invented the automobile assembly line a century ago and his company has been a major automaker ever since. But, how about today? Is Ford a good or bad investment as carmakers need to invest hundreds of millions in new technologies or fall by the wayside? This thought came to mind as we read an article in The New York Times about how Ford and VW are set to cooperate in developing both electric and self-driving cars.

Battery powered, self-driving cars have the potential to eliminate tailpipe emissions and avoid accidents caused by human error. But a rapid shift toward these technologies could be perilous for established carmakers like Ford and Volkswagen.

They must invest hundreds of billions of dollars in coming years or risk becoming irrelevant. And they face new competitors like Google and Uber with access to enormous financial resources. Investors have been much more willing to back Silicon Valley companies than the dinosaurs of Detroit or Wolfsburg, where Volkswagen is based.

Car sales are going down everywhere. This is because cars are more complicated to make and thus more costly to produce than even. Even streamlined assembly processes with lots of robots cannot make automobiles affordable for many people. Detroit’s first response was to lease cars which they have been doing for years. But, now it is so easy to rent a vehicle, even for a few hours, that many folks in cities only use an auto for family vacations and pay for the use of a car for a few hours for weekend shopping.

The end result, if nothing else were going on in the auto industry, would be fewer cars being sold. But, the story is more complicated. Self-driving cars and electric cars are truly the wave of the automobile future. Those who get there first with the best technology will win and others will, painfully, fade away. We recently asked if it is time to invest in GM as they seem to be coping with the issue. But, how about Ford. Is Ford a good or bad investment today?

Investing in Ford

Today Ford stock trades for just over a dollar a share. If you bought a share 40 years ago in 1979 you paid about $1.79 and you purchased that share in 1981 you paid about $0.81 so today looks pretty good. On the other hand, Ford traded for $34.79 in May of 1999 and traded in the $17 range as recently as the summer of 2014. Then, your $10 for a share does not look so good. Ford, like GM, has thrived over the last decades when gasoline prices were low and they could sell lots and lots of high-end pickups and SUVs. Those vehicles with their healthy profit margins were life-savers. But, when times change, profits go away. And, now the world is changing.

Earlier this year we asked how to invest in artificial intelligence. In that article we looked at how AI can be applied to products that we use in the real world. Self-driving cars are a prime example but companies like Waymo (Alphabet subsidiary) are more likely to attract investment capital than the “Detroit Dinosaurs” like Ford, GM, or Chrysler.

A serious problem for Ford, as well as other large automakers, is that they will need to find the capital to continue funding research in high tech vehicles at a time when more and more people are just using Uber or renting cars by the hour.

We leave it for you to decide is Ford a good or bad investment but from our perspective, the venerable automaker has its work cut out for itself.

Investing During a Protracted Trade War

China and the USA have both hardened their positions to protect their national interests in the ongoing trade war. China is increasingly talking about not being humiliated as during the European Colonial Era and the USA is increasingly talking about China as a threat to US technological and economic leadership. What you need to consider is how to go about investing during a protracted trade war.

How Will the Trade War Affect Investments?

To the extent that you are invested in China, you may need to worry about the companies that will be sanctioned or cut off from high tech American products. The New York Times writes that the USA blacklists more Chinese tech companies over security concerns.

The Trump administration added five Chinese entities to a United States blacklist on Friday, further restricting China’s access to American technology and stoking already high tensions before a planned meeting between President Trump and President Xi Jinping of China in Japan next week.

The Commerce Department announced that it would add four Chinese companies and one Chinese institute to an “entity list,” saying they posed risks to American national security or foreign policy interests. The move essentially bars them from buying American technology and components without a waiver from the United States government, which could all but cripple them because of their reliance on American chips and other technology to make advanced electronics.

The entities are one of China’s leading supercomputer makers, Sugon; three subsidiaries set up to design microchips, Higon, Chengdu Haiguang Integrated Circuit and Chengdu Haiguang Microelectronics Technology; and the Wuxi Jiangnan Institute of Computing Technology.

US policy makers have worried for years about China moving past the mass production of products to becoming dominant in ultra high tech. This is seen as a concern for US national security seems to have been the red line that China crosses when it set its sights on dominating supercomputing, artificial intelligence, and other ultra high tech areas.

For investing during a protracted trade way you will need to look at who loses markets and sales because of these restrictions. US chip makers are still at the forefront of manufacturing the highest quality of the fastest and most powerful chips. To the extent that they lose their markets, it will hurt anyone invested in these companies. To the extent that you are invested in a company like Huawei which seeks to dominate the newest and highest tech levels of telecommunications, you need to be concerned about the US and perhaps the Europeans banning their products and technology outright and continuing to do so for years. Then, a smart investor will look around to see who else is working in these echelons of high tech to see where to invest next.

The Trade War and Investment in Raw Materials for High Tech

We recently wrote about investing in non-Chinese rare earth producers. As we noted, the rare earth minerals that go into computer chips and other high tech products are not really rare. But they don’t exist in concentrated amounts that make mining economically feasible in most areas. China has invested in mining these minerals because it can do so cheaper than companies working in the West. And, they are doing it to control the market. To the extent that mining rare earth minerals outside of China because a defined national security concern, look to see government subsidies and support for these types of operations and more profits for investors.

Investing and Manufacturing Anywhere But China

There is a belief now that ABC is the best place for supply chains. “ABC” means anywhere but China. However, much of the manufacturing in Asian nations outside of China is taking place by Chinese companies setting up shop in places like Vietnam. Beware of investments in these countries if the USA starts looking closer at who owns a company, where the profits are going, and how much control the Chinese government is still exerting. To the extent that manufacturing is taking place in countries like Mexico, and the Trump administration is not applying punitive tariffs, these might be safer investments.

As you will note, we have not made any specific investment recommendations, which we rarely do. But, we hope this article has provided “food for thought” as the trade war goes forward and even lasts for another generation or two. We suggest that you read an article in the South Morning China Post about prolonged tensions with the US. A better way to view this subject is perhaps not to think in terms of trade but to look at who wants to dominate the planet for centuries to come and how much suffering they will inflict on their own people in order to achieve that goal.

How Could War with Iran Affect Your Investments?

Depending on whom you talk to we are at the brink of war with Iran in the last few weeks or have been at war with the Islamic Republic for several years. Most recently the U.S. president ordered an air strike in retaliation for Iran shooting down a U.S. spy drone. He allegedly called it off at the last minute because of not wanting to kill 150 people and said that such a response would have been out of proportion. As the world frets of a possible war with Iran, we are concerned about the flow of oil coming out of the Persian Gulf being shut off, Saudi oil fields and others in the area being damaged as well as shipping and storage facilities. The question for an investor is, how could war with Iran affect your investments?

Your Investments in the Stock Market Could Suffer

Forbes suggests that an all-out Iranian conflict could torpedo the stock market.

Aside from the perfectly reasonable fear that a raging (and possibly radioactive) regional conflict with a rabid and likely already nuclear-armed foe should inspire, the economic risks – unlike those engendered by the tanking Chinese economy – are fairly limited to oil price effects.

Not to discount the damage an intense war in the tightly-wound Middle East that could ensnare arch-enemies Iran (and satellites like Syria and Lebanon) on one side, and major non-US players like Israel and Saudi Arabia on the other.

Such a flashpoint could engender untold and unholy consequences that might poison human culture for decades, or longer.

They note the problems that conflict in the region might cause if the flow of oil is interrupted and, even worse, if the infrastructure is damaged for years to come.
On the other hand, both the USA and Russia are bigger oil and gas producers than all of the Persian Gulf. Perhaps, investing in oil companies that work outside of the Middle East could lead to substantial profits.

War, Recession, and Your Investments

The Post Millennial writes that war with Iran will sink Canada into a recession.

Canada still buys a bulk of its oil from Saudi Arabia and doesn’t have enough capacity to be self-sufficient. If Iran’s navy shuts down the Strait of Hormuz, through which of the world’s oil and gas trade occurs, it would spell disaster for not just Canada, but the entire world.

The price of oil would explode. Gas prices, already at a high due to Trudeau’s carbon tax, will skyrocket. It is highly likely that Canada, currently only growing at a meager 0.1%, will enter into a major recession.

While the oil shock may help in Canada’s oil exports, it could reduce demand and dampen the effect of the price surge.

While Canadian oil producers would do well, the Canadian economy would tank if Persian Gulf oil were cut off. And, the Millennial has a lot of other concerns about Canada being dragged into such a conflict, such as Canadians dying in combat.

Our opinion is that the US economy may be ready to cool off a bit and an armed conflict anywhere would not help. The US stock market is still overbought and does not need one more dose of uncertainty. And, while the US is juggling a trade war with China, picking fights with everyone else, and locked in a red state blue state fight to the political death, this may not be the best time to go to war. The problem is that governments have long used foreign adventures to distract from their problems (and inadequacies) at home. As such, take a close look at your investments and consider what happens if fighting breaks out in the Persian Gulf.

How Politics Will Affect Your Investments

The trade skirmish between the U.S.A. and China threatens to become a permanent trade war. Many investors have come to realize that the trade war is really not about the balance of trade but rather about global economic and technological leadership. We discussed this issue in our article about the trade war becoming permanent. The decline of U.S. power after the post-World War II era was predictable as the Japanese and European economies mended. And, it was hastened by ill-advised military involvement from Southeast Asia to the Middle East. Along the way, the “Asian Tigers” became technological and economic powerhouses throughout Asia and then there was the rise of China. The Americans and the Europeans were naïve in believing that if they gave China greater access to global markets that the country would gradually liberalize and the Communist Party would give way to a mixture of Capitalism and Socialism. That did not happen. And, as we noted in our permanent trade war article, China is aiming for global dominance on all fronts and does not intend to return to the “turning inward” of the European Colonial Era. Political concerns are now dominant both with the U.S.A. and China. So you need to wonder, how will politics affect your investments?

Best Places to Invest Money in a Prolonged Trade War

Market Watch suggests which stocks to buy if the trade war worsens and becomes permanent.

Goldman’s analysts, led by chief equity strategist David Kostin, are recommending that investors target services firms, which they describe as less exposed to trade policy (including retaliatory moves) and have better corporate fundamentals, as a group that could help to insulate investors from tariff-fueled volatility.

Goldman expects companies within services to outperform those that provide goods, including consumer products and hardware, like iPhone maker Apple Inc. AAPL, +0.88% and Johnson & Johnson JNJ, +0.64% for example. Shares of Apple have gained nearly 30% this year, while those for J&J are up 8.8%.

In addition, they suggest Microsoft, Alphabet, and Amazon as good choices.

Although the big tech companies that have led the market since the Financial Crisis would seem to have over-extended their rallies, their strength in services, as opposed to products (think of Boeing, Caterpillar, and Deere), is a reason to stay with these investments. Good returns on investments will be more likely to come from the services sector as the trade war drags on and gets worse.

In regard to national defense and reducing American dependence on Chinese products we might consider the ABC (anywhere but China) movement of production facilities to continue. We recently wrote about investing in non-Chinese rare earth producers as such businesses may end up benefiting from subsidies or other forms of government support to avoid a Chinese embargo on the elements so critical to high tech these days. This sort of niche investment may be particularly vulnerable to how politics will affect your investments.

What Happens to Your Investments if the U.S.A. Caves in and Makes a Bad Deal?

When political decisions are so critical to your investments, you need to worry about when the politicians will do things simply to get themselves re-elected. This fact has been a huge contributor to the ever-expanding U.S. budget deficit. Politicians know that when the economy is doing well and employment is strong that people are happy and that they, the politicians, are more likely to remain in office. So, they pass bills to increase spending, putting off things like repaying the national debt to the next generation. If Trump believes that he needs a “trade war victory” to get reelected, will he cave in and let the Chinese win? If that is the case, the stock market will be happy, stocks will go up, and U.S. economic and technological leadership will gradually dwindle over the years. It that is the case, you need to start looking at long term investments in China in hopes that the Chinese Communist party will throw a few scraps your way.

When you find yourself looking at the front page headlines more than at the business pages, you are wondering how politics will affect your investments. Good luck.

How politics will affect your investments is that  trade war could be devastating to the farm implement manufacturer, Deere.

Deere Combine Harvesting Soybeans


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