When to Assume More Investment Risk
Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Like a lot of people, I have a coin jar. I get home, I walk up to my attic home office, and I empty my change into the jar. Periodically, when the jar is full, I take it on over to the bank and turn it into bills. It always ends up being about $250 when it's all counted. A nice little windfall.
So, that got me thinking about windfalls. Those little cash boosts, whether planned or not, that come along every now and again. A person can do a few things with those. Using a windfall for some needed expense is a popular option (my 12-year-old's braces are a popular choice, right now). So is just having a nice meal or other entertainment that's 'off budget.' But a smart person takes it and invests it.
Most people, in my experience, don't have an investment plan. When I was an investment rep, I talked to a lot of people about their retirement plans. Most said they'd like to retire someday but weren't doing anything about it. Those are the people I tried to help most. And for those with a coin jar, I tried to educate about what they can do
Taking some of the windfalls, large or small, and turning them into retirement planning seems like a stretch, I know, but it works. A steady investment plan, augmented by windfalls, can do a lot more than you'd think to ensure a comfortable retirement for the average person.
So, think about it. Know that you have a plan, a certain amount invested each month in good, solid growth stocks and mutual funds. I've written about those before. But with windfalls (or coin jars) take some more risk. Look around for investments that you wouldn't normally take seriously, for one reason or another, and use some of that windfall and put it there. Sure, it's riskier, but it might also have more upside if you do your research right.
Here's a few of the riskier stocks that I think have more upside:
Chesapeake Energy (NYSE: CHK):
This energy stock is well-positioned to take advantage of the natural gas boom. While the firm's raw numbers aren't much to look at, their positioning has led to significant interest from those who follow the energy industry. Suntrust's analysts just reaffirmed a BUY rating, and that's gotten them some interest from the markets. The firm's November earnings showed it beating expectations by a penny, coming in at 10 cents per share rather than the predicted 9 cents.
Las Vegas Sands (NYSE: LVS):
Las Vegas Sands is a resort property company based in, well, Las Vegas. It's run by recently in-the-news Sheldon Adelson and develops hotels, casinos and other resorts as well as other properties that cater to those resorts. Travel and destination stocks can always be risky (they're very vulnerable to economic slumps), but I think LVS is a good buy for 2013. The economy is improving markedly and people are beginning to spend more. That means a savvy investor can take advantage of that by getting into travel stocks before the major vacation season. In addition, the firm's overseas properties are going gangbusters, especially in China, where the rich are gambling, spending and having a good time.
Hewlett-Packard (NYSE: HPQ):
Venerable Hewlett-Packard is a classic risky choice. It's coming off a few tough years, working through some management chaos and the installation of Meg Whitman as CEO less than 18 months ago. Shares are down significantly as the market tries to decide whether Whitman and her team can turn around one of the top tech firms of the last 50 years. Odds are they'll make some real gains in the next five years, though. Whitman has real ability and knows what she's doing. Rumors of a sell-off of underperforming divisions run rampant through the blogosphere and I wouldn't be surprised if they come true. I expect HPQ to outperform over the next year or two, and that makes it a good play for some risk-tolerant money.
Look, risky plays aren't for everyone. Only a small amount, say 5-10%, of your investment capital should go into riskier investments. But there should be some of it, providing you can accept the risk and have the time frame available to give the risk time to mature. With those provisos though, you should make the effort to educate yourself about risky plays as a part of an overall, growth-oriented portfolio.
Plus, remember that this is coin jar money I'm talking about, here. I'm never going to tell you to bet the mortgage on risky stocks. Heck, I won't tell you to take too much risk in ANY single equity. But taking that windfall-coin-jar sort of money, which you weren't counting on and never quite seems real, and making this sort of play can pay off.
Well, maybe use half of it. You owe yourself a good dinner out every now and again.
Nate Wooley has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!