By Kristina Gaalaas
On April 22nd, we observe the 46th anniversary of Earth Day. Since its inception in 1970, Earth Day has inspired millions of people to take action to improve the environment. But the lessons of environmentalism can also be applied to other areas of life — such as investing. Specifically, as an investor, you may well want to follow the “three Rs”: reduce, reuse and recycle.
Let's see how these environmental themes can be applied to your investment habits:
- Reduce — Many of us probably own more things than we really need. In fact, if all the other people on Earth used as much "stuff" as we do in the United States, the planet would need to have three to five times more space just to hold and sustain everybody, according to the National Institute of Environmental Health Sciences. So from an environmental standpoint, it might be smart for all of us to “streamline” our possessions. And the same could be true for our investments — it's not always a case of “the more, the merrier.” It's particularly important not to own too many of the same type of investments, because you could suffer a setback in a market downturn that primarily affects those assets.
- Reuse — One way of being environmentally conscious is to repair, rather than replace, durable goods such as bicycles, washers, dryers, etc. After all, “new” is not always better. Many investors are also prone to tossing out the old and bringing in the new — and not always with the best results. For example, some investors switch their overall strategy every so often in attempts to capitalize on some trend they have heard about. But you're almost certainly better off by sticking with a long-term strategy that's appropriate for your goals, risk tolerance and time horizon. Of course, within your strategy you can make adjustments as your circumstances change over time, but there's probably no need to toss your entire approach overboard. As you invest, though, always be aware that the value of your investments will fluctuate, and there are no guarantees that you won't lose value.
- Recycle — Aluminum cans become airplane parts, old phone books are transformed into textbooks and plastic beverage containers may end up as the carpeting on your floors. It's truly amazing how recycling can give new life to old, unwanted products. In a way, you can also “recycle” investments that no longer meet your needs, either because your circumstances have changed or because the investments themselves have become fundamentally altered — as is the case when a company in which you invested has shifted its focus or taken its business in a new direction. Instead of just liquidating the investment and using the cash to buy, say, an ultra-high-definition television with all the bells and whistles, you could find a new use for the proceeds in your investment portfolio. To name one possibility, you could use the money to help save for a child's college education. Or you might use it to help fill other gaps in your portfolio.
By following the “reduce, reuse and recycle” philosophy, you can help make the world a “greener” place to live. And by applying the same principles to the way you invest, you can create a healthier environment in which to pursue your important financial goals.