Investment Ideas At The Top Of The Market

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I’m always looking for new investment ideas due to excess cash flow. All of you who spend less than you make should have the same problem. But given we are near all-time highs in the stock market, good ideas are harder to come by.

I’m also always being asked by folks who discover my background whether I have any investment ideas for them. I usually play dumb so I can live a more peaceful life. Besides, everybody’s financial situation and risk tolerance is different.

For the sake of growing our knowledge, I’m going to do something different from now on. Every time I stumble across a good idea where I plan to invest a significant amount of capital ($10,000+), I’ll write about it if allowed. I’ll lay out my bullish argument and the FS community can proceed to tear it up. The community will get to learn how to analyze similar investment ideas in the future so we can all get smarter.

The Easiest Investment Ideas

Before we talk about my latest investment idea, let me remind everyone about a perennially good idea: paying down debt, no matter how low the interest rate. After all, a small positive return is better than a loss if we do correct. Not once have I regretted paying down debt, even if the money could have made more money in an investment.

Another great idea is to invest in your business or yourself. There’s a good chance with additional capital expenditure your business or career will grow faster than the market. For example, Financial Samurai was a triple digit grower for the first five years, easily crushing the returns of the market. Getting an MBA part-time to invest in my career also paid off due to a promotion the year I graduated. Do not underestimate the power of you.

If you’ve already developed a steady debt pay down strategy and you’re already spending wisely on yourself or business, here’s an investment idea that might intrigue you. This article is relevant for those who:

  1. Are afraid of investing in the stock market at all-time highs
  2. Want to know how to invest in hedged investments
  3. Invest for the long term
  4. Feel they have too much cash

Overcoming The Fear Of Investing

Despite the fees (0.5% – 2%), I’m a fan of structured notes because many of them provide a downside buffer or barrier in a particular investment plus full upside participation. Back in 2012, I didn’t have the courage to invest $150,000 of my severance check into the stock market because I had no job. But I felt strongly then, as I do now, that it’s important to continuously invest for the long run, no matter what your situation.

What gave me the courage to invest back then was a principal protected structured note. In other words, no matter what happens over the six-year note term, I would get 100% of my money back provided the issuing bank was still in business. If the market went up 100% during this time period, I’d also be up 100%.

What was the catch? The minimum investment amount was $50,000 and I would only receive a 0.5% annual dividend versus a 2% annual dividend if I had bought a DJIA index ETF naked (no protection) instead. The issuing bank would also get to use my money as they pleased.

It’s been over four years since I bought the note, and it’s annualized an ~8.8% return net of fees. I took $53,000 in profits off the table in August 2016 to spend on some home improvement projects. There was no penalty for selling a portion of my note early either, although they usually charge a 1% fee. My banker forgot to tell me before I sold, so he waived the charge. I’m letting the remaining $150,000 principal balance ride until June 1, 2017 when the note expires.

There is no way I would have gone “all-in” if there wasn’t any downside protection. I’ve since invested in many more structured notes since 2012 to overcome my fear of investing in the stock market. When you’ve invested through the Russian Ruble Crisis, the Asian Financial Crisis, the dotcom bomb, SARs, and the latest US housing implosion, you have a lot of battle scars.

When you retire early or set out to become an entrepreneur, the desire for cash is more intense.

For those of you who are also concerned about going naked long when the stock market is at its all-time high, take a look at the below investment. Study the chart and see if you can understand what this note is offering on your own.

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