What a beautiful time of year it is here in the great Northeast. The blanket of snow has given way to lush green lawns, thick forests and flourishing gardens.
No wonder few of us wish to spend time during the evening or over the weekend evaluating their financial plans and/or investment portfolio. However, we must and in order to ease the mental transition, we thought it appropriate to detail some of the similarities between the two–your garden and your financial future.
Prior to the ground being warmed by the spring sun, usually during February, many gardeners take time to map out their plots. Seasoned investors tend to do the same thing, periodically assessing where they currently stand. Some of the inventory they take may include the date the securities they own were purchased, the adjusted cost basis of each, whether they are in qualified or non-qualified accounts and an idea of how they have been performing, absolutely and relative to their benchmarks.
Planting investment dollars
Now it is time to plant or, as it pertains to your investment dollars, put some money to work. Some gardeners make the mistake of planting flowers that bloom at the same time of year–for example, daffodils and tulips. Investors do the same thing.
They invest all of their assets in a specific industry or those that have a similar market capitalization. On the equity side, experienced investors realize that they need a portfolio that is spread across different industries, market capitalizations and regions of the world.
Fixed income investors should also diversify across bond types (corporate, government, municipal) as well as those with differing maturity dates and credit quality. Now that you have made some investments (planted your garden), it is time to tend to them. Pay special attention to information that might either help or derail your portfolio.
Consider them insects – some are helpful, like bees and ladybugs, while others are harmful, like aphids. This information includes quarterly corporate earnings reports, economic data, domestic political or geopolitical events and legislation. Upon receiving and digesting this data one must determine if this investment has become something that needs to be either partially or completely pulled or one that should be nurtured.
Experienced, competent investors tend to accentuate the components of their portfolios that have the most potential, all the while deemphasizing or eliminating those that do not. It is akin to pruning your garden. This is not an event, but rather an ongoing process quite similar to weeding, mulching, fertilizing, watering, composting or pruning.
Healthy gardens need to be pruned and so do both the winners and losers in your investment portfolio. Perhaps you cut back on a big winner that has become too large a percentage of your overall account or cut back those that have short-term headwinds but still retain long-term potential. Furthermore, it is also prudent to get rid of weeds entirely or cut the losers in your portfolio.
Finally, systems need to be in place to effectively deal with the inevitable positive and negative events that will occur along the way. Effective investing includes the development of strategies to proactively deal with these events prior to their occurrences, all the while recognizing that not all outcomes will be desirable.
Gardening, like financial planning and investing, requires an initial plan that is well thought-out and designed, a review of your progress on a basis that is dictated by events rather than the calendar and a system in place to deal with issues as they arise. Good luck and enjoy the journey.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks, and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, please call 279.1044.