Money & Investing - Banks.com

Recent events have me thinking about what makes a prudent investment. After all, when one looks at some of the ways that late pop singer Michael Jackson invested his money, it is difficult to think that he always made wise decisions. Or maybe his investments were reasonable, but the way he overspent (his legal problems only added to his costs) rendered his investments decisions moot. While Neverland (and the toys continually bought) turned out to be poor decisions, buying the Beatles catalog was probably a smart move, reports BusinessWeek:

Shortly after his string of early 1980s hits that included Thriller, one of the best-selling albums of all time, Jackson was shrewdly advised to buy the Beatles catalog for $47 million. Ten years later, Jackson merged his music company with Sony Corp.’s (SNE) music publishing arm in a deal reportedly worth $90 million to him.

Today, that company owns the publishing rights to thousands of hit songs by everyone from Neil Diamond to Lady Gaga. Music publishers collect royalties from radio stations, movie studios, and record labels every time a song is played or album sold. Jackson’s half interest has been estimated to be worth as much as $500 million.

At any rate, I began wondering to myself about what makes a prudent investment, and how you could figure out if you were making a wise decision. After all, all investment carries the risk of loss, and anything that seems a good idea at the time might turn out to be a poor idea. But here are some tips that might help you better determine what might make a prudent investment:

1. Potential for gains. You want something that is likely to increase in value over time. And those gains should overcome any expenses that you incur. (This is why I rarely think a primary residence qualifies as an investment; what you pay in interest almost always overcomes the amount of money you make when you sell a home that has appreciated in value.)
2. Acceptable risk. You need to be able to determine your risk tolerance, and make investments that have risk that is acceptable to you financially and emotionally.
3. Fundamental appeal. A prudent investment is one with fundamental strength, and an underlying appeal that will still be intact years from now. You have to be able to sell it at some point in order to make money on it.

At any rate, imprudent or not, Michael Jackson truly was a great entertainer and worldwide icon worth remembering.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.