How do you know which of the highest rated stock newsletters  is the right one to help you reach your financial goals?  Below are 5 questions you must ask before following the stock recommendations of any investment newsletter.

1) What are the investment newsletter’s results in real-time?  This may seem straightforward forward but many editors can hide their real-term performance by including back-fitted or hypothetical results to make their performance look better.

You need to focus on how their stock picks perform in real-time.  Real-time simply means the actual results from the time they published the recommended stock pick as a possible buy to the time they recommended it as a sell; no sooner, no later.

2) Have they beaten their comparative benchmark? This is one of the most important pieces that typically doesn’t get taken into account by subscribers when evaluating the performance numbers.  If the newsletter buys mostly emerging market stocks you have to compare their results to that of similar emerging market indexes.  If it’s a gold newsletter compare it to a gold index.  If the newsletter mainly recommends stocks in the S&P 500 compare it to that.  Many investment advisers are a hybrid which makes it a little difficult.  If that’s the case you might want to use the Wilshire 2000 or a combination of stock market indexes as a benchmark.

After all, if the newsletter can’t beat a comparable index why buy it?  Typically the only reason a newsletter will compare itself to a benchmark or market index that isn’t similar to their investment strategy is that they want to make its results look better than they actually are.  This, along with other potentially misleading tactics are covered in 9 Sneaky Ways Stock Market Newsletters Trick You Into Buying.

3) Does your risk tolerance match up with the stock market newsletters’ risk profile and volatility?  If the editor recommends a basket of risky stocks with high volatility and you’re a conservative investor, you’re in trouble.  You’ll be uncomfortable with the wild price swings which will lead to bad decisions and you’ll more than likely lose more money than you should.

Likewise, if the newsletter follows a conservative strategy with low beta and you’re looking to pick the next Apple or Google, you’ll be very disappointed and won’t follow their advice.  Before you subscribe to any advisory service try to get an idea of the type of investment vehicles they follow and decide if that’s what you’re really looking for.

4) What are your investment goals?  If you’re young you can be a lot more aggressive and will probably be looking for a newsletter that invests in growth stocks, emerging markets or speculative stocks.  If you’re nearing retirement you need to protect your retirement income and may be looking for investment advice that focuses on blue-chip and dividend stocks for the income and relative safety they offer. Most investors end up subscribing to multiple sources to get a good perspective of the market and choose from the best ideas.  It’s the rare person that doesn’t need both growth and stability, even in their retirement years.

5) How easily can the stock newsletters listed performance be replicated by you?  This is a very neglected question that should be investigated carefully.  For example; if the newsletter typically features stocks that are thinly traded (trade a small number of shares each day), it will be hard for you to match or exceed the newsletter’s stated performance.

This happens for two reasons.  Once a popular newsletter comes out with a buy recommendation on a thinly traded stock, the stock price escalates rapidly as subscribers start buying.  It doesn’t take much volume to move a thinly traded stock.  Conversely when the stock is changed to a sell rating followers get hurt on the downside as the already low liquidity for the stock dries up even further and no more buyers are to be found.  With illiquid stocks, you also have to deal with large bid and ask spreads which typically aren’t factored into the performance results.

After evaluating all five of these questions you’ll have a good idea if you’ve found the right kind of investing advice that will help you reach your investing goals.  Use the analysis and stock newsletter club reviews to get an overview of the different offerings so you can decide which one is right for you.