What Makes A Good Investment?

When you’re living off your investments – as we plan to do when FIRED – there’s no room for guesswork. Every dollar has a job to do, and a good investment needs to tick all the right boxes. Not just one or two. All of them.

That’s why I’m not interested in speculation or hype. I want reliable, ethical investments that grow steadily, pay dividends, and help create a better future for everyone. If that’s you too, you might be aligned with what I look for in my share investments.

Remember, this is not financial advice and I am not a financial planner. I don’t have any licensing so please do your own research and create your own guidelines for what constitutes a good investment. 

It has to be ethical and sustainable.

First things first: values matter. 

A good investment doesn’t just grow your wealth, it aligns with your ethics. I’m drawn to renewable energy, green tech, solar innovation, and even cool robotics. These sectors excite me not just for their potential returns, but for the world they’re helping to build.

I still hold investments that aren’t, of course, and with an index fund you’re getting broad market exposure which means the fund manager does the specific stock picking, not you (although you can invest in an ethical index). It’s just that from 2025 onwards, I’m really looking at companies who do meaningful things for the future of the planet, take a firm stance on genocide and put people alongside profits… not ahead of them.

It must pay dividends, and ideally franking credits.

For those of us in the FIRE space, dividends are more than a nice bonus. They’re income, and what we will one day draw down and live on. 

I always look for companies that pay regular, reliable dividends, ideally with franking credits if they’re Australian-based. Franking credits are a tax-effective way to offset some of the tax paid by the company to your own taxable income, and it’s golden when you’re no longer earning a traditional salary. Plus, it’s even better if those dividends are growing. A rising dividend tells me the company is performing well and confident about the future.

It has to be easy to understand.

If I can’t clearly see:

• What the company does
• What sector it’s in
• Its current market cap
• Its full-year pre-tax profits
• Whether those profits are rising or falling

…then it’s a hard no, because transparency means that the company not only has nothing to hide, but also that they value me as an investor and are committed to building trust. Trust is a great foundation as a long-term investor strategy and this is reassuring. I want to know if there’s a clean balance sheet behind the numbers, and if the company is steering in the right direction.

I look at net debt.

This one’s non-negotiable. A good investment has manageable debt. Ideally, its net debt is less than 3x its full-year pre-tax profits. That shows me the business is sustainable and has flexibility if things change. High debt, to me, is a gamble.

I ask: where is this heading?

I want to understand where the company’s going. Are its markets growing or contracting? Is demand for its product rising or falling? What’s the broader economic context? A good investment doesn’t just look good on paper: it has a positive outlook and strong momentum. A company should really clearly be able to articulate that for shareholders.

If you’re making a big purchase into a business, I always think it’s worth looking at the shareholder AGM transcripts. What is the CEO’s most recent sentiment at their opening address? What’s on the horizon and does their language indicate any cause for concern? The chart trend should be upward. So, if it’s bouncing sideways or slumping, I have questions.

The price has to make sense.

I won’t pay a premium just because a stock is trendy. I look for companies trading at under 15x profits to market cap. If a company is priced much higher than that, I’m asking why. If it looks cheap, it’s going to cost me in the longer term. But if it’s good value, with strong fundamentals and growth ahead, then I’m all in.

It has to be liquid.

No question marks. If I want to exit, I need to know I can. The best investments aren’t always flashy, but they are consistent, so a good investment should be listed, active, and easily traded, with transparency, ethics and longevity. Maybe I’m trying to shoot for the moon, but this approach has steered me well so far. Remember, friends, good investments don’t just grow wealth, they buy peace of mind.