Reap Returns On Investments By 'Farming The Markets'

‘Farming the markets’ originates from the analogy that exists between personal finance (investing) and farming. Brenthurst Wealth Management financial adviser, Richus Nel, looks at how managing personal finance and investing can be improved by thinking like a farmer.

South Africa’s investment market delivered exceptional returns – about 19,5% per year – over the 10 years prior to 2015. It’s small wonder that investors are disappointed with the market’s relative under performance over the past two years.

The recent memory of the ‘good old days’ causes investors to have unrealistic expectations that their investments will double every five years. This expectation is frequently the main reason why investors make investment mistakes by risking too much, or even too little.

WHAT PERSONAL FINANCE CAN LEARN FROM FARMING

There is a material difference between ‘harvesting’ on one hand and ‘mining’ on the other. With farming, you prepare the land, and then plant and nurture until harvesting. With mining, you reap benefits that you have not necessarily initiated yourself.

You cannot harvest what you have not planted. In other words, you cannot benefit significantly from market growth if you have not invested significantly. People’s expectations of returns from markets are generally too high and they therefore plant (save) too little. If you want your market investments, such as your pension, to sustain you in later life, you will have to decide early on in life whether you are a sideline farmer, or a full-time farmer.

Farming requires impeccable discipline. The same goes for investment and financial well-being; financial discipline in the form of investing and spending is required daily.