This Spring, Prune Your Portfolio For Healthy Growth

My wife Carole was born and raised on a farm in South Dakota. Accordingly, she has a green thumb and she’s an avid gardener. As I write this on a lovely May morning, she’s planting tomatoes, zucchini, cucumbers, and bell peppers in our backyard.

As Carole often says, it’s important to trim dying plant life and remove weeds to keep your garden green and healthy. The same rule applies to your portfolio.

Evergreen No More

Managing your own portfolio can feel overwhelming and highly complex. But I like to think about financial challenges in simple terms. Whenever I assist Carole in yanking dandelions away from her tomatoes and cucumbers, I think about the time-sensitive or moribund aspects of my portfolio that need to get trimmed back.

In less volatile environments, blue-chip stocks were considered “evergreen” investments. They historically delivered consistent earnings growth and stable dividends. These assumptions have been challenged lately. Many erstwhile “Nifty 50” stocks have become long-term laggards.

The current woes of aircraft manufacturer Boeing (NYSE: BA), once an icon of American know-how, are emblematic.

For decades, Boeing was considered one of the bluest of the blue chips. No longer. BA’s share price has plummeted this year, amid a worsening safety scandal that has garnered several government investigations.

It has come to light that for many years, Boeing cut corners and scrimped on quality control, to boost profits and initiate stock buybacks. The company sold its soul to lift its stock price, but karma has caught up with the company, as the following price chart shows:

Boeing is a mega-cap component of the Dow Jones Industrial Average. The company’s fall from grace is a reminder that you shouldn’t be a passive investor.

While blue-chip stocks may not be the salve for longer horizon portfolios, it doesn’t mean there aren’t financial vehicles to include to help your assets grow steadily over a long period.

Highly rated bonds are usually the most stable investments. A bond promises a fixed interest payment annually, and as long as the company meets its commitment to repay the bond at its due date, you will receive your principal back.

Firms like Moody’s and Standard & Poor’s do a good job at assessing the risk of large companies issuing debt. These firms analyze each company’s cash flow to determine its ability to pay interest coupons and eventually pay off the debt. If a bond is paying an interest rate that looks too good to be true, it’s likely the market is worried about the company’s ability to pay off its debt.

Stocks with a long track record of paying dividends and a healthy stream of profits and cash flow usually have long shelf lives. These stocks don’t need to be growing earnings at a super fast rate. In fact, turbocharged earnings growth typically requires a big spending budget, which can cripple cash flow.

Further down the shelf-life timeline are high growth, more expensive stocks. They rarely pay dividends but offer the prospect of healthy capital appreciation if the stock catapults. Many tech stocks and biotech stocks fall into this category. It’s good to have a few on hand, but you’re best to sell them after a big move.

The last and least shelf-stable financial instrument for your portfolio is options. These instruments literally have an expiration date. If you buy a call option and the stock price is below your strike price on the expiration date, that call will expire worthlessly. The mirror image exists for a put option; if the underlying stock is trading higher than your strike price at expiration, your option is worth zero.

Options can add quite a bit of spice to your portfolio. They are incredibly volatile and offer geometric gains if time and price move in your favor.

You should also consider cryptocurrency. That’s right…crypto.

Crypto is making ordinary investors rich…and it also serves as a hedge against geopolitical risks and inflation. The price movements of cryptocurrencies are less vulnerable to overseas turmoil. Bitcoin (BTC), for example, is similar to gold in that it may be used as a store of value and a hedge against economic volatility.

But you need to make your move now, because the fuse is lit on this market. And every day you wait is literally costing you thousands in profits.

If you’re worried you can’t figure out crypto…don’t be.

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Get in on the crypto action…now. To learn more about Alex’s new trading service, Crypto Trend Investor, click here.

John Persinos is the editorial director of Investing Daily.

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This article previously appeared on Investing Daily.