Public companies that supply government war materials rarely experience explosive growth except at the onset of a conflict. Otherwise, their stocks are usually steady and dependable. Some investors avoid the industry on moral grounds. Stocks for many military contractors pay solid dividends. Volatility can erupt with news about military contract awards, congressional appropriations and other relevant information, but the industry rarely surprises investors.
Set aside a portion of your portfolio for investment in military contractors. For most investors, this should be an amount below 20% of your total investment holdings to avoid severe price fluctuations. Stocks in the sector tend to correlate with one another closely, as they all have the same primary customer: the U.S. military.
Research the individual stock prices of primary military contractors, such as Boeing, Northrop Grumman, Lockheed Martin, Honeywell and Raytheon. Annual military expenditures have grown reliably for decades since the end of World War II in 1945. From 1997 to 2007, for example, military expenditures grew from $305.3 billion to $527.4 billion, which doesn't include spending for the wars in Iraq and Afghanistan. The dependability of this sector puts it at a very low risk. Low-risk sectors generally allow less opportunity for large profits. Unless you already have substantial starting capital, you're not likely to realize massive gains from investing in war stocks.
Choose a set of military contractor stocks in which to invest. The sector includes weapons manufacturers, aerospace companies, factories and naval contractors. Predicting military contract awards for specific companies is difficult, so diversification of investments among various companies reduces your risk.
Lulls in global military operations generally allow you to buy stocks at lower prices. Sell portions of your holdings during periods of high military activity when the stock prices rise. Military stocks can crater rapidly during political transitions, particularly when perceptions arise about reductions in military activity. Investors who are holding military stocks for the long term do not have to worry about these price fluctuations and can simply wait to collect their dividends.
Monitor national and international news to glean information about pricing signals. Although news reports may be incomplete, they can provide basic information to help you make decisions about your investments.
References
- MarketResearch: Defense Investment Guide
- SecurityStockWatch
- GlobalSecurity: Military Expenditures by Country
- Stockholm International Peace Research Institute. "Military Expenditure." Accessed Oct. 7, 2020.
- Stockholm International Peace Research Institute. "Trends in World Military Expenditure, 2019," Page 2. Accessed Oct. 7, 2020.
- The Library of Economics and Liberty. "An Inquiry into the Nature and Causes of the Wealth of Nations–Book V, Chapter l." Accessed Oct. 7, 2020.
- The Library of Economics and Liberty. "An Inquiry into the Nature and Causes of the Wealth of Nations–Book IV, Chapter 5." Accessed Oct. 7, 2020.
- Committee for a Responsible Federal Budget. "CBO: Consequences of a Growing National Debt." Accessed Oct. 7, 2020.
- TreasuryDirect. "Summary Schedules of Federal Debt – Daily, Unaudited." Accessed Oct. 7, 2020.
- U.S. Government Accountability Office. "Action Is Needed to Address the Federal Government's Fiscal Future–Highlights." Accessed Oct. 7, 2020.
- U.S. Department of the Treasury. "Interest Rates - Frequently Asked Questions." Accessed Oct. 7, 2020.
- Congressional Budget Office. "Discretionary Spending in 2019." Accessed Oct. 7, 2020.
- Government Publishing Office. "Budget 2019: Contents of the Historical Tables," Page 58-59. Accessed Oct. 7, 2020.
- Ipsos. "Global Infrastructure Index 2019," Pages 8-9. Accessed Oct. 7, 2020.
- The Social Progress Imperative. "Global | View the Index." Accessed Oct. 7, 2020.
- The World Bank. "Military Expenditure (% of GDP)." Accessed Oct. 7, 2020.
- United Nations Human Rights Council. "Report of the Commission of Inquiry on Human Rights in the Democratic People’s Republic of Korea: Full Report and Supporting Documentation (Download Required)." Accessed Oct. 7, 2020.
- Council on Foreign Relations. "North Korea’s Military Capabilities." Accessed Oct. 7, 2020.
- Moody's. "Sovereign and Supranational." Accessed Oct. 7, 2020.
- Congressional Research Service. "Defense Primer: Department of Defense Contractors," Page 1. Accessed Oct. 7, 2020.
- National Aeronautics and Space Administration. "Global Positioning System History." Accessed Oct. 7, 2020.
- National Science Foundation. "A Brief History of NSF and the Internet." Accessed Oct. 7, 2020.
- Institute of Electrical and Electronics Engineers. "A Brief History of the Microwave Oven." Accessed Oct. 7, 2020.
- Army University Press. "Unmanned Aerial Systems: A Historical Perspective," Pages 127-131. Accessed Oct. 7, 2020.
- The World Bank. "Military Expenditure (% of General Government Expenditure) - United States." Accessed Oct. 7, 2020.
Writer Bio
John Hewitt began freelancing in 2008, writing about subjects ranging from music to stock trading, the energy industry and business. His ghostwritten work has appeared all over the Web. He attended New York University, pursuing a bachelor's degree in history.