Alright, it’s metaphor time. Imagine that you’re a farmer who is starting an orchard. Now, orchards take several years to mature into full fruit production. So, you start work on your orchard, but a year in, you have a financial crisis, and have to pull up some of your trees. So you start over. And a few years later, there’s another crisis, and you have to pull up some more trees. So, you start over again.
My question to you is: who would have a more productive orchard, someone who has to pull their trees up every few years, or someone who is able to let their trees mature without disturbing them? Well, of course it’s the orchardman who doesn’t disturb her trees. But why bring this up on a financial planning blog?
Because, investments are like orchards, in that they generally take some time to mature and become profitable.* If you put money in your retirement plans or long-term investments and then remove the capital before it has a chance to take root and compound, then you won’t get as much traction as you would if you let your investments mature over the long haul.
This is my number one reason for encouraging people to get an emergency fund: by having ready cash for emergencies, then you won’t have to disturb your wealth building investments. Since emergencies seem to happen every few years, an emergency fund can prevent the repeated disruption of an investment plan.
So, let your investments grow** by leaving them undisturbed, by having a plan in place when inevitable crises occur. That way you’ll enjoy the fruits of your long-term investments that much sooner.
* If they become profitable. Remember, nothing is guaranteed in the investment arena, and you can lose money on investments.
** Or shrink – that could happen, too.