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What investors can learn from gardeners

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POSTED: April 3, 2008 5:00 a.m.

Spring is here. If you’re a gardener, you know it will soon be time for you to put in your flowers or vegetables. But even if you don’t have a green thumb, you can still take advantage of the season by "planting the seeds" for the growth of another valuable piece of property - your investment portfolio.

Actually, you can find a few similarities between successful gardening and effective investing. For starters, both gardeners and investors need to consider their individual circumstances. If, for example, your garden is in a shady part of your yard, you might be able to grow some nice geraniums, but you’ll have tougher time with roses, which crave the sun. As an investor, you’ll also find that some investments are more appropriate for your situation than others. So, before you purchase a stock, bond, certificate of deposit or government security, you’ll need to determine if it’s suitable for your risk tolerance, time horizon and long-term goals.

Furthermore, just as gardeners don’t usually grow only one variety of flower or one fruit or vegetable, you, as an investor, shouldn’t stick with one type of investment vehicle. If you own nothing but aggressive growth stocks, you’ll likely take on too much risk. Conversely, if you "are too conservative" and invest only in government bonds and certificates of deposit, you’ll probably never achieve the growth you need, and your earnings may not even keep pace with inflation. Instead, build a portfolio containing a variety of investments that, when put together, is designed to help you make progress toward your objectives.

Another trait exhibited by gardeners and worthy of emulation by investors is patience. If you were dissatisfied with the growth of a plant after just a few days, would you uproot it and put another plant in its place? Probably not. Instead, you’d nurture the original plant, hoping that, in the long term, it is possible for it to grow.

The same thinking can apply to investments. Over the short term, your investment choices will fluctuate in price, and sometimes you may be frustrated by what you perceive as the lack of progress. But instead of constantly selling off investments and buying new ones, you’ll likely be better off choosing quality securities and holding them for a period of many years. Eventually, your efforts may be rewarded.

What else do gardeners do that might be relevant to investors? For one thing, they get rid of weeds that can choke off the growth of flowers or vegetables. As an investor, you too may benefit from occasionally "pruning" your portfolio of those investments that no longer meet your needs, and, in fact, take up space that could otherwise be more profitably used. That’s why it’s a good idea to review your holdings at least once a year.

Finally, just as backyard "diggers" may turn to master gardeners for advice and guidance, you, as an investor, could quite likely benefit from the services of a financial advisor - an experienced professional who knows the markets and who will take the time to understand your situation, needs and goals.

So the next time you see some industrious gardeners making something beautiful and productive in their yards, watch them closely. Their skills and habits might be productively transferred to you as you invest for the future.

 

Submitted by Laura Evans, a financial advisor with Edward Jones in Richmond Hill.

 

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