Picking Good Stocks

• 1). Find start up companies that are in hot niches because, typically, they can show tremendous results in a few months. During the "dot-com" bubble between 1998 and 2000, tech companies offered a good place to invest your money. The downfall of these companies can be how quickly they fail. By the end of 2000 hundreds of companies suddenly disappeared along with a ton of money from their investors.
  
  
• 2). Search for ethical and successful blue-chip companies. These are companies that have been doing business for a while. Pay attention to how they do things. If they have a history of being sued, it may mean they are an unethical company. The stock price could drop because of this, which is something to watch. On the flip side, companies that consistently show a profit will have a rising stock price.
  
  
• 3). Find a stock when it's at its lowest price. Research that stock and find out about the product the company offers. Watch the recent trends in that product market, and watch for any interest by other companies for a buy-out. Often times, a company will want to purchase a smaller company in the hope of expanding its reach in the market. The purchasing company might offer a premium per share price, so if you own that stock, you will be compensated even better. The best way to do this is to buy an appealing start up company and wait for a blue-chip to come along and buy it.
  
  

Picking Good Bonds

• 1). Bonds are a much safer investment than stocks. The safest bond to pick is backed by the United States government. These don't pay any interest on the amount you have invested. When the bond matures, you get the principle back plus full value of the bond. Typically, the value of the bond is double its original purchase price, but different bonds offer different returns.
  
  
• 2). When considering a corporate bond look at the company's long term goals and determine if they are going to be around for a while. Corporate bonds pay interest that could come as a check at the end of each year. To pick a good company, look at the products they are offering.
  
  Will those products be good in a few years? In other words, is that product going to be a six month fad and die out? Will it be a Sony Betamax or a JVC VHS? The VHS format won that war and went on to reign for 20 years.
  
  How much money does the company have? Do they have a lot of debt? The more liquidity that a company has (money in the bank), the stronger its economic situation. On the flip side, the more debt a company has, the more danger there is that it will default. Banks, on the other hand, carry a considerable amount of money and debt, but because they have to keep some of their available funds (known as fractional reserve banking) at all times in the bank, they are able to stay afloat assuming that an economic crisis, such as the 2008 recession, doesn't happen again.
  
  And, have there been scandals going on in the company? Intel, for example, has been getting pinned by Europe and the United States for monopolistic practices (offering incredibly high rebates if computer companies use their chips). That makes the company look bad. More importantly, often the company will have to pay large fines. This can be the first step toward pushing a company to failure.
  
  
• 3). Diversify your bonds so that you are generating interest revenue from multiple accounts. This is beneficial for two reasons. First, it provides a consistent flow of income and allows you to reinvest.
  
  Secondly, and more important, if a company defaults and you don't get all your principle back, other bonds in your portfolio will still be generating interest and you will still see some return.