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Harvesting in the investment field
It’s harvest time again. Of course, harvest season may not mean that much to you if you don’t work in agriculture.
But you can learn a lot from those who do, especially in your role as an investor.
Here are a few tips to consider:
Feed your portfolio – Through the proper combination of fertilizers and irrigation, farmers seek to maximize the growth of their crops. If you want to give your portfolio the opportunity to grow, you need to feed it the right mix of investments.
This generally means you’ll need to own a reasonable percentage of growth-oriented vehicles, such as stocks and stock-based securities. Keep in mind, though, that the value of these types of investments will fluctuate, sometimes sharply, and there’s no guarantee you won’t lose some, or all, of your principal.
Be patient – Crops don’t grow overnight. Farmers know that they will put in countless hours before they see the fruits of their labour. And along the way, they will likely experience setbacks caused by a variety of issues: too much rain, too little rain, insect infestations, the list goes on and on.
When you invest, you shouldn’t expect to get rich quick, and you can expect to experience obstacles in the form of bear markets, economic downturns and changes in legislation. Investing for the long term, rather than focussing on short-term success, can help you reach your objectives.
Respond to your investment climate – Farmers can’t control the weather, but they can respond to it. For example, when it’s been dry for a long time, they can boost their irrigation. As an investor, you can’t control the economic climate, but you can make adjustments.
For instance, if all signs point to rising long-term interest rates, which typically have a negative effect on long-term bond prices, you may need to consider reducing your exposure, at least for a while, to these bonds.
Diversify – Farmers face a variety of risks, including bad weather and fluctuating prices. They can help combat both threats through diversification. For instance, they can plant some crops that are more drought-resistant than others, so they won’t face complete ruin when the rains don’t fall.
As an investor, you should also diversify. If you only owned one type of financial asset, and that asset class took a big hit, you could sustain large losses. By spreading your dollars among an array of investments – such as stocks, bonds, cash and other vehicles – you may help reduce the effects of volatility. Be aware that diversification by itself can’t guarantee a profit or protect against loss.
Relatively few of us toil in the fields to make our living. But by understanding the challenges of those who farm the land, we can learn some techniques that may help us to nurture our investments.
Ben Moore is a financial advisor with Edward Jones. This article is provided for information purposes only. Please consult with a professional advisor before implementing a strategy.