3 Hail Mary Plays That Could Bring Your Stock Portfolio Back to the Brink

With the S&P500 down nearly 10% last month and 23% in 2022, your investment portfolio is probably not having the best year. And while it doesn’t feel good, enduring bear markets is just part of investing.

But if you find yourself in a deeper sinkhole than most, there are some strategies you can deploy to bring your portfolio back to life.

While none of these magically turn your losses into huge gains overnight, these investment moves have the potential to set you up for long-term success.

Image source: Getty Images.

1. Maximize your Roth IRA contributions

With the market down sharply, a Roth IRA is more valuable than ever. Roth IRAs are retirement accounts that allow you to grow your wealth tax-free. Unlike the 401(k) which allows you to contribute pre-tax money in hopes of paying less tax in retirement, Roth IRAs allow you to allocate after-tax capital but avoid paying taxes. taxes once you retire, regardless of the amount. your account has grown.

While the near term looks bleak for stocks, it’s hard to believe the market won’t be significantly higher in a decade or two. By investing through a Roth IRA, you’ll enjoy all that growth without ever paying a penny of tax.

Because of the advantage of this strategy, the Internal Revenue Service has set an annual contribution limit of $6,000 (or $7,000 if you’re 50 or older). I’m a fan of maximizing your contributions each year, but given the discounts in the market today, that seems like a go-to strategy this year.

2. Look for beat stocks

While bear markets cause many people to panic, savvy investors understand that when stocks go down, opportunities to buy companies at great bargain prices arise.

There are many underdog companies to choose from, but you don’t have to hunt for diamonds in the rough to generate alpha (market outperformance).

Take Microsoft (MSFT -0.44%) for example. The software giant is one of the most profitable companies on the planet and yet is down almost 30% in 2022.

As interest rates continue to rise, companies that can fund future growth through their own profitability are likely to outperform. Although it is tempting to swing towards the closes with very depressed and unprofitable stocks like Roku (NASDAQ: ROKU) Where Teladoc (NYSE: TDOC)I think financials will separate the big winners from the unfortunate losers of this economic cycle.

Consider Microsoft’s revenue and bottom line growth over the past four years:

Year

Revenue increase %

% growth in net income

Net Profit Margin %

2019

13.91

136.80

31.2

2020

13.95

12.85

31.0

2021

17.53

38.73

36.5

2022

17.96

18.72

36.7

Source: Microsoft annual reports. Table by author.

Another highly profitable stock that has been punished so far in 2022 is Alphabet (GOOG -0.73%). In the last quarter, the company grew revenue by 23% and its balance sheet has nearly $125 billion in cash (including short-term investments).

Most notably, Google’s parent company is trading at a remarkably low price-to-earnings ratio of 18.

For context, here’s how Alphabet’s valuation compares to its peers:

GOOG PE ratio chart.

GOOG PE Ratio data by YCharts.

3. Consider a small bitcoin allocation

While I think the two strategies above have great potential for resuscitating a struggling portfolio, neither is particularly brazen.

For risk-tolerant investors, a small allocation to Bitcoin can be the swing game for the closes to drive future outperformance in years to come.

It’s important to do your research before diving into the world of crypto, but I think the grandfather of digital currencies could return to all-time highs in the next few years once macro headwinds subside.

While Bitcoin has fallen nearly 60% in 2022, the cryptocurrency is no stranger to volatility. In fact, it crashed over 50% seven times before the most recent crash. More importantly, he has recovered from each of those crashes to reach new all-time highs.

Trading around $20,000 today, such a rally would mean that Bitcoin could jump over 300% in the coming years.

This is obviously a risky strategy, and any allocation to Bitcoin should be a small percentage of your overall portfolio. But if you’re looking for opportunities to pull yourself out of a hole, a small bet on the potential future of digital currency could be very rewarding.

Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Mark Blank has no position in the stocks mentioned. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Microsoft, Roku and Teladoc Health. The Motley Fool has a disclosure policy.

Sallie R. Loera