The national celebration of Arbor Day happens on the last Friday of April, although some states have designated different dates for their own Arbor Day observances. Over the years, Americans have planted millions of trees on this day, improving the environment, reducing erosion and leaving an invaluable gift to future generations. But the concepts behind Arbor Day can also be transferred to other realms — such as investing and personal finance. So, this year, why not take steps to establish your own Financial Arbor Day?
Here are some ideas to consider:
- Plant some “seeds.” Even the mightiest trees started out small — and the same is true of the investment portfolios of many successful investors. If you’re just beginning to invest, put whatever you can afford, however minimal, into an IRA and a 401(k) or other employer-sponsored retirement plan. If you’ve been investing for a while but still need to move closer toward your goals, you may have to seek out some new fields of opportunity and invest in them.
- Nurture the “roots.” To grow, tree roots need to be fed through water, oxygen and minerals. And once you’ve planted the seeds of your investments, they need to be nourished, too. So, for example, once you’ve opened your 401(k), boost your contributions whenever you get a salary increase. Also consider fully funding your IRA until you’ve reached the annual limits.
- Seek out variety. If you look around your neighborhood, you will likely find many different types of trees. And that’s a good thing, because when Dutch elm disease or some other ailment strikes one type of tree, you and your neighbors still have others that can thrive. And the same principle applies to investing — if an economic downturn or some other event primarily strikes one type of asset, and most of your money is tied up in that asset, you could run into trouble. That’s why you need to diversify your investment dollars among stocks, bonds, certificates of deposit (CDs), Treasury bills and other securities. While diversification, by itself, cannot guarantee a profit or protect against a loss, it can help reduce the effects of volatility on your portfolio.
- Be patient. When you plant a seed, you know it will take many years for your efforts to reach fruition. Over time, your tree will lose some branches and bark, and it will be buffeted by heavy winds, scorching sun and driving rains. However, if it has a strong set of roots, it can survive and grow. You need to show the same patience with your investment portfolio, because it, too, will face a variety of challenges over the years, and at times it may appear beaten down. But if you follow a consistent strategy, supported by a mix of quality investments that reflects your risk tolerance, time horizon and long-term goals, and if you have the patience and discipline to ride out downturns, you can help yourself reach your objectives.
When people use their shovels and hoes on Arbor Day, they create something that will literally last a lifetime. And the same thing can happen when you declare your own Financial Arbor Day — so get out your investment “tools” and get to work.