Weeding Out the Investment Weeds
By Jessica Lanning CFP
I thought weeding was the lowest of all tasks, and yet there I was, relegated to pulling weeds.
I’ve never been one for yard work. A city kid to the core, I love that great swaths of concrete and rock gardens free me to do other things with my time.
But I’m helping my 80-year-old friend get some things done around her house. Maintaining the yard is one of them.
She has a neighbor that sporadically helps. Said neighbor, a self-identified expert horticulturist, deduced I knew nothing about plants within about 30 seconds of meeting me.
“You,” he directs, “should pull all these grass-like things, particularly the ones with seed pods at the top. We don’t want them growing back.”
I hid my incredulity and disdain, but I knew he wasn’t wrong. Although a lame substitute for skiing, I told myself it was good exercise and outdoor time.
I have full license to rip out all grasses and put them in the green bin. Mass murders by the handful are welcomed, celebrated even.
Investments Require Weeding Too
“Weeding” is what I ask my money managers to do. It’s an invaluable task that I appreciate daily.
Despite the rise and popularity of index investing — that is, owning all the stocks represented by an index, like the S&P500 — that doesn’t mean it’s not without its drawbacks.
At any given moment, the S&P500 or any index has weeds. Lots of them. They are not worth owning.
Any money manager worth their salt will tell you the same. Makes no sense to own junk when the same money can be redirected to own something that might actually make money.
Some “Weeds” Are Worth Keeping
Fun fact: The Calla Lily, with its beautiful white and yellow blooms and broad leaves made famous in Diego Rivera’s paintings, is classified as a weed in many places. Where I live in California, we love their beauty and keep them around on purpose.
Same goes in investing. Some stocks or bonds grow like crazy and may very well be a weed of sorts and worth keeping so long as they’re kept an eye on. They can add good value to a portfolio at least temporarily.
Seemingly unwanted investment weeds — like a stock losing money or not providing any balance to a portfolio — can also be valuable at the right time. Investment weeds can be sold at a loss to balance out the gain of the harvesting of a beautiful flower.
The Weeding Never Ends
Even with all my hours of weeding, the weeds came back. Perhaps fewer of them, but still taking up space, threatening to multiply. I have the forearm tendonitis to prove it.
Same goes for investments. Regular reviews of what you own reveals where the weeds are hanging out and what should be plucked now or later to make room for things that will grow if given the space and resources.
People disagree on how often one should review a portfolio. Those of you who are active watchers/investors probably have your own rhythm. My more passive investors probably need to do at least annual if not semi-annual review.
Keeping Your Garden Healthy and Weed-Free
Part of being successful financially is keeping track of your investments, making sure you’re still on track, weeding, and making mid-flight corrections. You can absolutely do this on your own.
A good money manager will do this for you as well — pick the plants, pluck the weeds, keep everything as healthy as possible, and optimize timing on sales to take advantage of losses and gains and minimizing taxes.
I’m the first to admit that I’m not great with plants. I can keep kids, dogs, cats and pets of all kinds alive without much effort. Leave your plants with me, and I make no promises. Succulents manage to eke out an existence.
This is why I hire professional money managers for my clients. This allows me to amass an investment brain trust of any large competitor. This means more reliable growth and less weeds.
And I can concentrate on planning issues – productive plants and flowers, if you will – like taxes, insurance, estate planning, retirement planning, education planning, etc.
The result? A healthy financial plan with fewer investment weeds.
If you want to learn more about weeding out your own investment weeds, please reach out.
Lanning Financial Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.