The stock market is bouncing around like a balloon in the wind. The real estate skyrocket has come crashing back to earth. Bond yields are low and going lower.
What’s a poor investor to do these days?
Should you cling tightly to the tried and true? Put your stock money only in large-cap companies that have stood the test of time? Move into fixed income investments? Buy bonds with tax-free yields?
Or is it time to break out of the box? Swing for the fences? Invest in atypical industries like vending machines, or dabble in the foreign currency markets?
Unfortunately, absent a time machine it’s pretty tough to predict the future, and we can’t say for certain which is likely to be your best bet. But we can offer you some options to consider.
So we’ve put together four investment ideas that are definitely a bit out there, aggressive and edgy moves that could pay off big. Or not.
And for the more conservative among you, here are four ideas that probably won’t pay for your yacht, but just might protect your portfolio through whatever rough days lie ahead.
Consider foreign currencies
In the past year the dollar has slipped and the Federal Reserve has lowered the interest rate. That makes foreign currencies very attractive, says Jordan Goodman, author of “Fast Profits in Hard Times.”
Goodman has been shorting the dollar for a while and says there are aggressive and conservative ways of doing foreign currency trading.
“The conservative way is to buy CDs denominated in foreign currencies,” Goodman says. “You can get (CDs) in Canadian dollars, British pounds, Swiss francs, euros, yen or a multicurrency basket.”
If you bought foreign currency CDs last year around 4 percent, Goodman says, those CDs would probably have beaten all conservative investments because “the dollar fell so dramatically,” he says. “I think that’s going to continue this year.”
The more aggressive way to play foreign currencies is to trade directly. At Web sites like Forex.com, you can sell the U.S. dollar and buy the British pound, Canadian dollar, euro or whatever it may be.
“There are no commissions. Basically it’s a spread business. It moves in very small increments,” Goodman says. “With the Fed lowering rates, it makes the dollar even less attractive and it means the foreign currencies are going to keep going up.”
Don’t follow the crowds
When a television or radio investment commentator starts talking about the next big investment, consider doing just the opposite, says Doug Charney, senior vice president of Charney Investment Group of Wachovia Securities LLC.
“Go the opposite of what’s a hot trend,” Charney says.
One trend that was “definitely scary” was oil stocks, he says.
“If oil takes a major hit, (investors) are taking a huge hit. And another one that’s getting that same kind of attention is alternative energy like solar stocks,” he says. “A lot of these companies don’t have that good of earnings and they’re performing like crazy. That’s a scary trend.”
In this declining housing market, Charney says, buying mortgage companies is not necessarily a bad buy despite all the negative talk surrounding such businesses.
“If you pick good mortgage companies right now, or good quality banks that don’t have a lot of subprime exposure, and with some homework you can figure that out, you’re going to be rewarded better than someone who’s trying to hop on a trend that’s already going,” Charney says.
He believes when stocks and investments become a trend, “you’re probably pretty late in the game, because that trend’s been going for a while and you just woke up to it. … (You) have to do a little bit more homework when you do the opposite trends, and you really have to make sure you’re buying the quality company.”
Look to the profit-making machines
Goodman says a strong, passive investment is buying shares of point-of-sale machines — ATMs and vending machines.
Every time you swipe a debit or credit card, the merchant pays a fee of 25 to 50 cents to the owner of the machine. Goodman says these machines are located in high-volume locations such as supermarkets, hotels or airports. Most of these machines are leased to the retailers and the leasers do not accept individual investors. But there are some companies that offer investment opportunities for $10,000 or more for multiyear commitments.
“They give you checks every month,” Goodman says. “It comes to typically about a 20 percent to 25 percent yield. You can either take the cash or reinvest and buy more machines and grow your portfolio that way.
“This is a completely passive income from your point of view as an investor. You just buy into the thing, buy as many machines as you want and the cash flow starts the next month.”
Goodman also recommends investing in vending machines.
“You buy your Coke at 10 cents a can and sell it for $2,” he says. “You can buy existing portfolios of vending machines. There’s a whole vending machine world out there. … It is literally a cash machine in a case.”
However, according to the Federal Trade Commission, fraud is often associated with vending machine opportunities.
The FTC says fraudulent business opportunities often appear in newspaper classifieds or online ads offering big dollars for little effort. The FTC says that while these fraudulent business opportunities prey on consumers, they also harm legitimate vending machine companies.
Good companies will provide good equipment and help you set up in a high foot-traffic area like a grocery store or strip mall while a fraudulent operation will provide broken equipment and put your vending machine at a rural gas station, the FTC says.
For more information on vending machine investing, visit vending.org.
Use payday loans to your advantage
In this economy, loan fees of 20 percent or higher just do not seem fair. But the fact is, payday loan services is a legal and quite profitable business that does very well when times are bad, Goodman says.
“In hard times like this, more people are going to be using payday loan stores,” Goodman says. “There are funds that you can invest at payday loan companies.”
If your ethics make you doubt this investment, Goodman says, 20 percent of the U.S. population has no bank account and depends on these payday loan facilities to cash their paychecks.
“You can complain about it or think it’s bad, but (people use these) every day,” he says. “It’s a perfectly legitimate business and you can make money on it in a counter cyclical kind of way.”
Goodman adds this is a high-risk investment because payday loan recipients often default on their loans. But it is a “very consistent business, been around a long time and about to get better.”
Kim Kiyosaki, author of “Rich Woman: A book on investing for women,” believes silver is the best investment in the current market. She says a one-ounce silver coin runs about $17.
“What I like about silver is it’s a consumable product: It’s used in microwaves, light bulbs, cell phones and computers. It’s used in everything,” she says. “And with India and China coming online, silver demand is going to go up and there is a limited supply. Anybody today can buy a silver coin or bar. The price is very low and I think it’s going to go up.”
Silver expert Theodore Butler, whose recommendations can be found at Investmentrarities.com, said in a recent interview that over the past couple of decades, recessions have coincided with some of the best silver price rallies. “A recession shouldn’t be a negative for silver,” he says.
Invest in big, consistent companies
Warren Buffett once said you should be greedy when others are fearful and fearful when others are greedy. Right now, people are fearful.
Charney says that’s a good thing for long-term investors.
“U.S. stocks are going to come back, primarily large cap companies like McDonald’s and Coca-Cola,” Charney says. “The low dollar makes them very good in the international markets. And they haven’t really moved, rebounded since 2000. In the late ’90s, it was the large cap stocks that were the place to be. But since then, they’ve not come back.”
As for mutual funds, Charney says to continue looking for the bigger companies that are in the S&P 500 or the Nasdaq 100 — the largest stocks.
Charney says to consider funds with health care and technology sectors, but shy away from some foreign funds.
“I’m not real keen on India and when you look at like Europe and Asia — developed markets — they haven’t had a big run,” he says.
Invest per your age
Bellevue, Wash.-based Certified Financial Planner Lee S. Martin recommends clients invest based on their age. He says to take your age and that is how much you should have in bonds and cash investments.
If you are 60, have 60 percent in bonds and cash, and the rest in stocks. Or if you’re 30, by this strategy, you should have 70 percent in diversified stock.
“Most people tend not to be able to tolerate as much risk in reality as they might think in their own minds,” Martin says. “This (strategy) keeps the average (person) more likely to stay invested in a volatile market rather them moving out of 100 percent stock position to cash based on pure emotion.”
This strategy also makes you constantly rebalance your portfolio regardless of market conditions.
“People often move toward a conservative position as they age, wanting to preserve what they have built up,” Martin says.
Good time to buy bonds
Municipal bonds will produce good tax-free yields while “you’re sitting on them,” Charney says. “ETF (exchange-traded funds) municipal bonds are selling at 90 percent of what a taxable Treasury bill is selling, and yet they’re tax free.”
Charney says everybody is scared of bonds right now.
“You want to go the opposite direction where everyone is scared,” he says. “If you’re staying in the investment grade municipal bonds, I don’t think there’s any concerns on that at all.”
Convertible preferred stock or convertible bonds are “an interesting place to be at this time, because when the market takes off, a convertible bond or convertible preferred stock can be converted into the company’s common stock,” Charney says. “You could buy a (convertible bond) and if that underlying stock goes up, there’s a conversion factor; you can actually convert it over.
“So the market stays low, it’s going to act like a bond and not really take the big hit. It’ll take a little bit, but not a big one. And then if the market takes off, which I think it will, then you make money on the upside. It’s kind of playing both sides of the game.”