Farming and Investing: Planning for a Successful Harvest
by Thomas McCarrell, Vice President, Investment Management
As I witnessed the impact of the drought on the farming community this summer, I began to think about the parallels that I have often drawn between farming and investing. Farmers invest every time they plant a seed and investors plant a seed every time they purchase an investment. I have used this analogy many times to encourage investors to be patient. It takes time for investments to grow to maturity. Except… this summer, the volatile weather impacted the harvest like an economic downturn impacts an investment portfolio! It made me think about what other parallels there might be between investing and farming.
Well designed investment portfolios start with a financial plan. Investors need to think about what their goals are, what kind of result/harvest they want, before deciding what kind of investments they will make. Farmers also consider their goals and plan. What crops their land will support? Will the climate and forecasted weather enable that crop to grow? What will it cost to get the crop to market, and what price might it sell for at harvest? Will there be a profit? Both need plans with a long term time horizon. Success is defined by decades, not seasons. Yet a bad season can have a severe impact on reaching the long term goals.
After the planning has been done, the investments have been purchased and the crops have been planted, there is no time for rest. Farmers monitor and respond to conditions in much the same way that investors should monitor their portfolios. There will be a need for fertilizer, pest management, and weed control. In an investment portfolio we monitor investments for earnings trends, quality issues, and unexpected developments that might impact the portfolio. In both examples there is a factor that isn’t so easy to control. The water that makes things grow…
In the investing world, the water is the broad growth of the economy. Slow growth in the national economy yields slow growth in investments. A recession is the investor’s drought. Farmers know that there will be natural disasters and make plans to protect themselves. Investors should do the same. A good solid financial plan that includes consideration for unexpected events is crucial to a secure financial future. United Bank’s Wealth Management Group can help build that plan for you. Contact us to get started toward a successful harvest!