Investing is sort of like Gardening?

I’m not sure where I found this blurb – it was probably a headline on an email from someone, but I found it rather interesting.

I believe it was in response to a query about whether a person should buy individual securities or a broad based index fund. In brief it went as follows.

Suppose you like tomatoes.

What are your options to acquire them?

Obviously you have multiple choices such as: growing them yourself, shopping at a local farmer’s market, or the grocery store. All of these choices have pluses and minus related to quality, time, money, and taste. This is at least somewhat similar to buying stocks or any other investment asset. You can purchase an individual security, buy an actively managed mutual fund, or a passively managed ETF or mutual fund. Again all of these have differences related to time, effort, and risk, which will impact your overall satisfaction.

If you like gardening and are willing to put in the time and effort needed, you can grow your own tomatoes and select the variety with just the right characteristics to suit your needs. The farmer’s market may provide a similar result with a significant reduction in time and effort with a similar result. On the other hand, if this is of no interest to you, a trip to the grocery store will result in perfectly satisfactorily result as well especially if time and money are important factors.

If you are inclined to spend the time on researching and monitoring individual securities, then this may be the invest strategy for you. On the other hand, if you interests are in a different area, then focusing on a low cost passive investment strategy may be the right choice for you.

Just as raising your own tomatoes can be quite satisfying if you are willing and able to put the needed time and effort into growing them; choosing your own investments whether individual securities or some other investment vehicle can also be quite rewarding. On the other hand if this not your area of interest, then the grocery store or a low cost index fund may be the right choice for you.

By the way I like gardening. I know it would almost certainly be cheaper to buy our vegetables from the grocery store, but quite frankly there is nothing like Sugar Snap Peas right out of the garden and I simply can’t find sweet corn that is better than what I harvest from the backyard.

I also like looking at individual companies to purchase, and really like to know more about the companies I do business with. However, I do know that for the bulk of my savings a diversified portfolio of low cost passive index funds are most like the best choice for me over time.