There is something life-affirming about the return of springtime to a cold climate. It is easy to feel hopeful when vibrant new life springs up from what seemed like a frozen tundra a few weeks ago. Some people get the urge to garden!
Gardening is a trial-and-error experience with plenty of opportunity to learn from mistakes. The problem is, learning by making mistakes can be an expensive and time-consuming process. Apply the lessons from one endeavor to other pursuits. For example, there may be lessons from gardening that can be applied to investing.
Here are nine things about gardening that can inform an approach to investing.
- Clean up the deadwood. One generally thinks of gardening as a process of nurturing growth, but there's a side to it that involves cutting things down and clearing them away. The more extreme the weather is, the more deadwood that may have to be picked up from the yard, and the more damaged limbs that have to be removed from trees. It's the same with the stock market -- periods of extremes such as sharp corrections or rapid rises create a need to go through a portfolio and evaluate what needs to be cleared out and what needs to be added. Clearing away the deadwood can create more room for growth.
- Plan for growth. Speaking of growth, as much as it may seem spontaneous at times, careful planning can make it more reliable. Be prepared to plant some seeds and not see anything happen right away. This is similar to retirement planning. The first few years worth of retirement plan contributions make virtually no noticeable difference, but it is only by planting those initial seeds that investors may benefit from later growth.
- Think perennials. Sustainability should be a goal of any gardener -- it's not necessary to start from scratch every year. Sustainable financial habits such as paying bills on time, settling debt and making regular retirement plan contributions are like planting perennials - the initial effort can pay off year after year.
- Consider the climate. There is a reason tropical plants aren't planted in upstate New York -- the climate just won't allow it. Similarly, work within the limitations of the economic environment. For example, interest rates on everything from savings accounts to Treasury bonds are currently a fraction of their historical norms. As a consequence, retirement programs have to operate on more modest return assumptions than would historically be the case.
- Understand the cycle. People in climates with distinct changes in seasons understand that different times of year call for different gardening tasks. Though they are less predictable, there is also a certain inevitability to stock market cycles. Understanding that bear markets are bound to happen helps investors balance portfolios with some lower risk securities, and invest most aggressively immediately following declines to take advantage of the more favorable environment that may follow. Free up your credit so you can access a personal loan when funds are tight.
- There's beauty in variety. Planting different types of things not only makes a garden more interesting, but it helps protect against problems that might strike any one particular species. Diversification plays a similar role - it stops investors from being overly victimized by any one type of risk.
- Respect the odds. Not everything planted is going to flourish, and not every investment is going to succeed. Operate on the assumption that it may take repeated efforts in order to make money, rather than counting on striking it rich on the first try.
- Stay engaged. Gardens and investment portfolios require regular attention. Letting things go to seed and then trying to catch up is usually a losing battle.
- Practice constructive patience. Attention is one thing, but constant watching cannot force plants or investments to grow instantly. In fact, too much fussing with them can be counterproductive.
Gardening and investing can both be tedious chores or wonderfully satisfying. Sometimes when we get blissfully absorbed in these tasks we do our best work.