Har­vest sea­son of­fers les­sons to in­vestors

South Shore Breaker - - Homes - KEVIN DOREY FI­NAN­CIAL FO­CUS kevin.dorey@ed­ward­jones.com

It’s har­vest time again. Of course, har­vest sea­son may not mean that much to you if you don’t work in agri­cul­ture. None­the­less, you can learn a lot from those who do, es­pe­cially in your role as an in­vestor. Here are a few of these les­sons to con­sider:

Feed your port­fo­lio

Through the proper com­bi­na­tion of fer­til­iz­ers and ir­ri­ga­tion, farm­ers seek to max­i­mize the growth of their crops. And if you want to give your port­fo­lio the op­por­tu­nity to grow, you need to feed it with 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 of work be­fore they see the fruits of their labours. And they know that, 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, changes in leg­is­la­tion and so forth.

Con­tin­u­ing to in­vest for the long-term and fo­cus­ing more on long-term re­sults than short-term suc­cess can help you as you work to­ward your ob­jec­tives.

Re­spond to your in­vest­ment cli­mate

Farm­ers can’t con­trol the weather, but they can re­spond to it.

So, 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.

To il­lus­trate: 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.

But spread­ing your dol­lars among an ar­ray of in­vest­ments — such as stocks, bonds, cash and other ve­hi­cles — may help re­duce the ef­fects of volatil­ity on your port­fo­lio. (Be aware, though, 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.

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