John Cameron's personal blog

Serious discussion about your financial position now - and in the future.

Are You Growing Or Harvesting Your Investments?

Just as crops are first grown, then harvested, so is wealth.

Think of all the years of putting money away into superannuation. Money is regularly added, and this can be thought of as fertiliser. It helps the crop grow. Then there is the performance of the investments, which grows over time, with the occasional setback (much like a crop can experience setbacks due to weather, disease etc.).

All of a sudden it is time to harvest. Just as a well tended crop of fruit trees can go on producing fruit year after year, so to with a well structured investment portfolio. 

This is when you get to retirement – you start harvesting your investments.

However, there are some important differences – you have stopped adding the regular fertiliser (by adding money to it). However, you need to keep it in good health, so that it will keep producing fruit for many years to come.

This is where much of the research that underpins portfolio construction falls down. It does not differentiate between the needs of people in growth phase, and those in harvest phase, and most of it has been done on the assumption (often implicit) that people are in early harvest phase.

Yet, the needs of the two groups are very different.

There is a serious need for researchers to look differently at retirement investment. They need to go beyond compound annual return and annual volatility as the sole criteria. It is also important to separate total return into growth and income (they have different characteristics), and also look at geopolitical events to provide context.

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