This week, people across the country will plant trees to celebrate National Arbor Day.
Trees provide beauty, fruit and oxygen, as well as protection against land erosion. But the act of planting and nurturing trees can also guide our behavior in other areas — such as investing.
First, consider tree growers' vision and patience when they plant saplings. As an investor, you, too, need this type of perseverance and long-term outlook.
When you invest, focus on the long term yet be prepared for inevitable short-term market downturns. Many investors hold quality investments for decades. It’s a long process, but the potential growth you seek will need time.
In addition, be aware of how tree growers keep their orchards healthy. By providing proper irrigation and taking disease-prevention measures, they help trees stay on the long path toward maturity.
Similarly, nurture your investment portfolio by continually providing it with the financial resources it needs to stay “healthy.”
During periods of market volatility, it can be tempting to take a “time out” from investing — but if you do, you’ll miss out on potential growth opportunities that may follow.
Since no one can predict "up” or “down” markets, you’re better off by staying invested.
Also, just as horticulturalists take steps to keep their trees from being subject to disease, you can keep your portfolio in good shape by periodically “pruning” it of investments that no longer meet your needs.
Here’s something else that tree planters can teach us: diversification.
An orchard that contains different fruit trees may have commercial benefits greater than an orchard that only grows apples.
Plus, presence of a variety of trees can prove beneficial if disease strikes one type. In some areas of the country, for example, Dutch Elm disease wiped out thousands of trees, leaving entire streets treeless. If some other species had also been planted, these streets would still have had the benefits provided by mature trees, even if the elms were gone.
As an investor, you don’t want to own just one type of financial asset, such as growth stocks, because if a downturn hits this segment, your entire portfolio could take a big hit.
A better strategy would be to populate your “financial orchard” with a variety of investments — such as stocks, bonds and government securities — suitable for your situation. (Keep in mind: While diversification can help reduce volatility's effects, it can’t guarantee a profit or protect against loss.)
Joe Faulk is a financial adviser.