A comparison between how flowers grow and investing, writes Peter Watson.
Today we are going to look at investing through the eyes of Mother Nature.
Humans often rate the weather as good or bad. Sun is good. Rain is bad.
The same rating system can be applied to investing. Stock market increases are good but stock market declines are bad.
The reality is the weather, and the stock market are similar. Some days are good, others are not. That is how things work.
Flowers need rain to flourish. Yes, it does tend to rain a lot in April, but the upside is May when things blossom. That is the time when Ontario landscape flourishes.
Nature needs rain to flourish. Investments need the risk of decline to prosper.
The easy way to understand risk and its influence on investing is to consider the main two components of an investment portfolio. Bonds are considered low risk, and the expected return is low.
Stocks are considered risky, and the expected return is higher than bonds. That is the theory, and that is the reality of how these two asset classes have performed over the last 100 years.
Bonds are slow and steady and produce low returns. Conversely, stocks values fluctuate, including periods of disappointing returns, but the long-term returns are good.
Stock market declines are not the reason to avoid owning stocks. A long-term perspective can mean you will tolerate declines as a necessary evil to pursuing higher returns.
The root system for you, the investor, is based on many things including your personal financial objectives, current financial situation and tolerance to accept market volatility.
We hope this Mother Nature perspective helps you grow a healthy investment portfolio.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com
