If you and your family participate in upcoming Earth Day events, such as helping clean up a local park or taking materials to a recycling center, you know the benefits of doing your part to improve your surroundings. But are you doing everything you can to upgrade your environment for investing?
Actually, as an investor, you can learn a lot from the lessons of Earth Day. Here are just a few ideas:
• Diversify. If you’re familiar with Earth Day, you know that it involves multiple activities, including educational programs and do-it-now action steps. This variety is necessary because protecting our environment is a complex challenge. Meeting your short- and long-term investment goals can be challenging, too, but you’ll have a better chance of success by diversifying your investment dollars across a range of vehicles, such as stocks, bonds, government securities and certificates of deposit. Diversification can help reduce the impact of volatility on your portfolio — and high volatility can be an obstacle for some people trying to follow an investment strategy. (Keep in mind, though, that diversification by itself cannot guarantee a profit or protect against loss.)
• Seek growth opportunities. Some people plant trees on Earth Day, hoping to watch them grow over the years. As an investor, you need to plant “seeds” today in the hopes of growth in the future. That means, among other things, that when you purchase growth-oriented investments for the long term, you need to try to stick with them and not “uproot” them after short-term declines in price.
• Develop good habits. If you attend an Earth Day program, you will learn about many eco-friendly habits you can develop, from using energy-efficient light bulbs to recycling old computers and other electronic devices. To invest successfully, it’s important to develop good habits, such as staying invested in all types of markets, seeking tax-advantaged investments and reviewing your portfolio regularly to make sure it’s still appropriate for your risk tolerance, time horizon and long-term objectives.
• Avoid “toxins.” At some Earth Day events, you can learn about “green” substitutes for toxic chemicals in common household cleaners. When you invest, you may also want to avoid “toxins” — or at least “toxic” behaviors, such as chasing after “hot” stocks that are inappropriate for your needs or trading so frequently that you run up big fees, commissions and taxes.
• Think long term. Above all else, Earth Day is a reminder to us that we all want to leave a healthy planet to future generations — which means we need to make moves that are beneficial for the environment over the long term. When you invest, you also need to focus on the future. That means following a long-term investment strategy and not getting sidetracked by short-term events, such as political crises and economic downturns.
Earth Day comes once a year, but its lessons can have a lasting impact on our environment. When you apply these same lessons to your own investment environment, you may be able to achieve some healthy results.
This article was written by Edward Jones for use by Evans, an advisor for the company.