By Jeffrey Baumert
NEW YORK (AdviceIQ) -- Gardeners have a lot to teach investors about how to plan with an eye toward long-term trends and to adjust that in light of unfolding events.
Just look at how many individual investors fled the stock market in the wake of the 2008 slump. They bolted even when the market began a powerful rally off its March 2009 low point -- a rebound that brought stocks to new heights and erased the losses from the downturn. While these investors are returning now, many missed that ride up.
And that's despite longstanding research that shows stocks, over time, trend higher. As Wharton professor Jeremy Siegel shows, equities are the asset class that historically delivers the best growth, notwithstanding the occasionally punishing bear market. His classic book, Stocks for the Long Run, demonstrates how stocks averaged a 7% return yearly after inflation over the past two centuries.
Economic and market forecasting involves high technology, system modeling and academic research, as well as committed and well-educated economists and investment strategists. As good gardeners know, experts put out useful forecasts, but it is important to remember that specificity is often not as accurate as we might hope it to be.
Investors are wise to follow the lead of the master gardeners and prioritize long-term trends while allowing for very minor adjustments with near term information. This approach helps avoid damaging mistakes that result in having to start the garden over from scratch and ultimately delaying the harvest.
The field of weather forecasting also involves high technology, system modeling and academic research, as well as committed and well-educated meteorologists. Every day we can hear or read what the weather is supposed to be tomorrow or even 10 days from now. Generally, the more near term the forecast, the more reliable it is.