• Diversify. Farmers face a variety of risks, including bad weather and fluctuating prices. They can help combat both threats through diversification. For instance, they can plant some crops that are more drought-resistant than others, so they won’t face complete ruin when the rains don’t fall. As an investor, you should also diversify; if you only owned one type of financial asset, and that asset class took a big hit, you could sustain large losses.
But spreading your dollars among an array of investments - such as stocks, bonds, cash and other vehicles - may help reduce the effects of volatility on your portfolio. (Be aware, though, that diversification by itself can’t guarantee a profit or protect against loss.)
Relatively few of us toil in the fields to make our living. But by understanding the challenges of those who farm the land, we can learn some techniques that may help us to nurture our investments.
Brian Humphrey is a financial consultant and investment advisor.