One of my early mentors taught me this in the late 90’s. He was old school. He believed in insured tax-free bonds and later investing the interest in a solid mutual fund, but he taught me this simple technique for evaluating investments and now I want to pass it to you! It’s called SLIC, which is short for Safety, Liquidity, Income, Control.
- The first thing to ask about an investment is how Safe it is. Is the investment insured? Does the investment use debt and how much? Does the investment cover its interest / debt payments from operations?
- The second thing to ask about an investment is whether it is Liquid. Basically, how quickly can you get out of an investment and turn it to cash. What fee is there to get out? Can you get out in a reasonable amount of time?
- The third thing to ask pertains to Income. How much income does an investment pay? Is it tax free or taxable? How often are payments made (monthly, semiannual, etc.)?
- Control is the last thing to look at. Do you have access to the books/ records of the investment? How is it held (in a brokerage account, bank account, etc)? Can you readily access info about what’s going on with the investment?
It’s one person’s sort of simple view on investing but it’s kept me out of several “briar patches “ over the years.