While investing concepts can be complex and somewhat foreign for many, there is much that can be learned about various aspects of investing from something most people are familiar with: gardening. If you were to look outside at your garden right now, would you say that it is it well maintained? Is it flourishing with a variety of plants? Is anything missing?
Successful investing and successful gardening share many similarities. For both, the process begins with a vision. Once the vision is implemented, both your garden and investments require regular care and attention. More importantly, each one requires a long-term approach in order to reap maximum rewards.
A gardener begins with a unique vision of the desired end result for the garden, and no two gardeners are alike. Your garden will reflect your unique tastes. Once the initial blueprint has been established, you’ll select the specific components. Certain plants are going to be excluded from your garden for various reasons. Some may not be appropriate for the climate, or they may be too expensive for your current budget. In addition, each plant has individual needs for sunlight. Some plants need longer hours of sunlight, while others need less. Plants also have different needs for irrigation.
Just as you want to create a healthy garden with a variety of easy-to-maintain, low-cost plants that produce great bounty, you also want to build a low-cost, tax-efficient, and well-diversified portfolio that will meet your financial goals over time.
Just as growth in your garden doesn’t occur simultaneously — some plants flourish in spring, while others bloom in summer — the same goes for your investments.
Some investments may be too risky for your financial appetite, such as the less liquid and less transparent frontier markets — a subset of emerging markets. It’s also prudent to stay away from penny stocks — tiny companies trading over the counter (OTC) — that often dominate speculative internet discussion forums. Other investments may be too expensive, such as load funds and hedge funds. Their costs usually don’t justify their returns. In some instances, these investments fail to deliver even their stated objective.
A successful gardener understands the value of starting early and remaining patient. It takes time for plants to grow and develop. During different seasons, your plants will rest, grow, and flourish, bearing the fruits of your disciplined and dedicated approach.
Time is also the most important element in investing. Investors don’t accumulate wealth overnight. It takes time to build real wealth and is a lifelong commitment. Investors who have a long-term perspective are far less inclined to be swayed by hype, euphoria, or occasional dramatic market swings. Markets can be a powerful wealth-creating machine over the long term, when utilized correctly. It’s important to stay invested to realize the powerful compounding effects on the growth of your wealth.
Pruning your portfolio
You can’t leave your carefully selected plants alone and expect them to flourish and develop into your long-term vision on their own. They simply won’t meet your expectations if you let them grow wildly. It’s necessary to take proper care of and maintain your plants. A dedicated gardener wisely prunes on a regular basis. The selective cutting and removing of undesirable twigs or branches can have a tremendous positive impact on the overall health and strength of your garden. Pruning not only shapes the future growth of the garden, but also increases the yield and quality whether you are growing fruits, vegetable or flowers.
The same is true of portfolio maintenance. It’s important to periodically assess the performance and health of your investments, making adjustments as needed. Healthy growth cannot be maximized without regular pruning. By reducing the risk from falling branches, you’re removing unnecessary risk from your portfolio. Similarly, by getting rid of the deadwood, you’re eliminating unnecessary costs in the portfolio. When you think of pruning in the investment sense, think about smart beyond-the-market decisions that can add incremental return and compound your wealth over time.
Reap The Rewards
As you apply these simple, yet powerful gardening concepts to your investing approach, you’ll build a strong foundation for your investment portfolio. You’ll likely have a beautiful and bountiful garden too!
This content is provided for informational and educational purposes only. The information, analysis and opinions expressed herein reflect our judgment as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation. All investments carry a certain risk and there is no assurance that an investment will provide positive performance over any period of time. Information obtained from third party resources is believed to be reliable but not guaranteed. Past performance is not indicative of future results.