Tests are supposed to be objective, designed to find out a person’s grasp of a subject matter or their intellectual acumen. This seems fairly straight-forward and for those crafting something like an I.Q. test, not too difficult a task. In thinking about this concept, however, I recalled a lesson about testing I was taught some time ago.
The gist of the lesson was that a standardized test reflects the knowledge of the test’s author, not necessarily that of the person taking the test. As an example of this, the instructor asked for a volunteer and I foolishly raised my hand. Once he learned I was from a suburb, the fun began. He began asking questions from an I.Q. test but one designed for children raised on a farm.
“What’s a power rotary tiller?” I did not have an answer. “Okay, what’s a row crop cultivator?” Again, no clue. “Okay, what’s an S-tine or spike teeth?” This clearly was going from bad to worse. At this point, the instructor indicated I would score very, very low on the I.Q. test.
In thinking about my woeful lack of farming knowledge, I wondered what I would do if I was given the task of plowing a large field. I might have some remote idea about which end of the tractor to attach the plowing device but after that, I would be in severe need of assistance. More to the point, I would need a good farm-hand to assist me in plowing the field. As I considered my current role at Covenant Trust Company, I realized that financial planning and investing are not a whole lot different.
Effective investing is not unlike planting a large field.
Before planting, a field needs to be prepared and plowed. With investing, economic research needs to be done to determine the current economic environment. Choosing crops that can thrive on your land is the next step. So for investing, once the economic climate is determined, an investor needs to choose what group of investments will produce a good return to help meet a desired goal. Choosing a good allocation of investments would therefore be the next step. As with crops, a plan for harvesting has to then be established. This requires knowing how and when to draw the earnings from your funds. These steps may sound easy but the trouble is, most of us don’t really know how to effectively go through the investment process.
Like me with the agricultural-based I.Q. test, if you’re not familiar with the terminology or the process, investing can be daunting. However, a good investment partner is like help from a good farm-hand in cultivating a field. With good guidance, the financial field you have to cultivate can yield a very good crop.