by Kathryn Hauer, CFP®, EA
A garden can teach a lot. Patience, perseverance, commitment, etc. – all of which can be used for investing.
I don’t have a garden. I don’t even like to go outside much. However, I know that many people love their gardens — and hate the weeds that try to overtake them. “If you were to track every hour spent in your garden, you would probably find that you do an inordinate amount of weeding,” writes Barbara Pleasant at FineGardening.com. Well, Barbara, I’m sure you’re right and your fellow gardeners would agree.
As a financial advisor, I see many parallels between gardening and building wealth — especially when it comes to the weeds. Several ideas on how to handle weeds in a garden apply to your finances as well. Here are five keys to managing the weeds in your financial garden.
1. Patience is a virtue
Timing is everything in weed control and in portfolio management. It makes more sense to pull weeds after a drenching rain than when the soil is parched and dry. When it comes to stocks, just because you’re ready to buy doesn’t mean the timing is right to invest. Sometimes you have to be patient and wait until it is wise to act.
2. Diligence is the mother of good luck
To grow more flowers, you need to “deadhead” plants — that is, remove withered blooms. Your portfolio also grows larger when you cull the investments that aren’t compatible with your goals. Each year you should rebalance your portfolio. That means selling some of the investments that did well and buying more of the ones that didn’t do as well so you maintain the right mix to match your goals. These practices take research and time, but are worth the effort.
3. An ounce of prevention is worth a pound of cure
Putting mulch around your plants reduces weeding time because it deprives weeds of light while keeping the soil moist. Be proactive in preventing financial weeds as well: If you know you could fall for dubious deals, stay away from seductive ads and the people who offer them. Or, if you know it will be hard for you to stay invested when you see volatility in the market, avoid watching too much financial news.