Cornwall Ontario — Brian Seguin writes about Investment Strategy in this weeks Financially Speaking: The feeling of spring is in the air, and as we draw nearer to longer days and sunny weather, many of us have gardening on the mind. Perhaps you are planting some flowers in your garden, or helping to plant trees in your community. That act of planting and nurturing trees can also guide our behaviour in other areas of life — such as investing. First of all, consider the vision and patience exhibited by tree growers when they plant their saplings.
As an investor, you, too, need this type of perseverance and long-term outlook. When you invest, you should be focused on the long term yet be prepared for the inevitable short-term market downturns. How long is “long term”? Many investors hold quality investments for decades. It’s a long process, but the potential growth you seek will need this time.
What else can you, as an investor, learn from tree planters? For one thing, be aware of how they keep their orchards healthy. By providing proper irrigation and disease-prevention measures, they help their trees stay on the long path toward maturity. Similarly, you need to nurture your investment portfolio by continually providing it with the financial resources it needs to stay “healthy.” During periods of market volatility, it can be tempting to take a “time out” from investing — but if you do, you’ll miss out on the potential growth opportunities that may follow. Since no one can really predict the beginnings and endings of either “up” or “down” markets, you’re better off by staying invested. Also, just as horticulturalists take steps to keep their trees from being subject to disease, you can keep your portfolio in good shape by periodically “pruning” it of investments that no longer meet your needs.
Here’s something else that tree planters can teach us: diversification. Consider an orchard that contains several different fruit trees; its commercial benefits may be greater than a comparable orchard that only grows apples. Plus, the presence of a variety of trees can prove beneficial if disease strikes one type.
As an investor, you don’t want to own just one type of financial asset, such as growth stocks, because if a downturn hits this segment, your entire portfolio could take a big hit. A better strategy would be to populate your “financial orchard” with a variety of investments — such as stocks, bonds and government securities — that are suitable for your situation. (Keep in mind, though, that while diversification can help reduce the effects of volatility, it can’t guarantee a profit or protect against loss.)
You can learn some valuable lessons from tree planting that could prove helpful to you as you chart your course for the future — and you won’t have to “go out on a limb” to put these strategies in place.