How to Make a Fortune With War Stocks

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.