June 10th, 2021
How an 18th-century farmer’s advice can help you to lower your risk when investing
If we told you that a farmer’s advice can help you to protect your investment portfolio, you might wonder if we’ve been watching too much Countryfile lately. But as strange as this might sound, it’s also true.
To best understand this, we’re going to step back in time to the 18th century, when a growing British population meant agriculture needed to rapidly change.
Some of the key lessons that they learned in this period can also be applied to the modern day. Read on to find out what an 18th-century farmer can teach you about protecting your investments.
Farmers increasingly diversified their crops to protect them from harvest failures
In the 18th century, the UK underwent a population boom, growing from around eight million in 1700 to more than 10 million in 1800. This growth meant that there were a lot more mouths to feed and so farmers had to adapt their methods.
Not only did they need to increase their yields, but they also had to reduce the likelihood of harvest failures, which were a significant issue at the time. Unlike in the modern day, because travel was so slow, it often wasn’t possible to simply ship in food from another country when blight or bad weather affected their produce.
One of the ways that farmers began to adapt was to grow a more diverse selection of crops. Prior to this, many people had typically only grown monocultures of grains, such as wheat.
The obvious problem with this is that while you may get a strong harvest when times are good, they were also putting all their eggs in one basket. If the weather was not ideal for wheat to grow, or the region was impacted by a blight, then they ran the risk of all their crops failing.
Gradually, more and more people began to experiment with their practices to make their farms more resistant to harvest failures.
Instead of growing only one type of grain, they switched to growing several at once – where they used to grow only wheat, they switched to a mix of wheat, rye, and barley.
By diversifying what they grew, farmers could significantly reduce the risk of harvest failure, as a blight would only impact part of their crops. While rye bread may not be as tasty as bread made from wheat, it was definitely better than an empty stomach.
Working with professional agriculturalists helped many farmers to modernise
Another way that farmers benefited in this period was from the increasing professionalisation of agriculture. This was a period when farming became a science, and this meant that many farmers could benefit from others’ knowledge.
Agriculture became increasingly professionalised in this period, particularly by scientists such as Charles Townsend, Robert Bakewell, and Jethro Tull, the latter’s name you may recognise as the inspiration for the 60s rock band.
While many farmers could individually experiment with their practices, the work of these agriculturalists helped to speed up the process by adding a touch of professionalism.
They championed the widespread adoption of new fertilisers and encouraged farmers to grow nitrogen-fixing plants, such as beans and legumes, to improve soil quality. These helped improve yields and maximised the returns that farmers could get from a piece of land.
The professional agriculturalists also helped farmers to avoid amateur mistakes that were affecting their harvests.
For example, many farmers used had previously sown seeds by throwing them over lightly tilled soil. While this may have seemed like a good method, many of those seeds were lost due to being eaten by birds while others were planted too close together or too shallowly.
Instead, the professionals recommended the use of new seed-planting drills, which involved using machines to distribute the seeds evenly and plant them at the correct depth. This helped to ensure that the sowing gave the maximum yield.
Working with a professional can be the most effective way to grow your investments
While there isn’t typically much overlap between farmers and investors, except perhaps for a shared love of bull markets, there are still some useful lessons to be learned.
One of them is the importance of diversifying your assets in order to protect your portfolio from market shocks. By spreading out your investments across different sectors, and different geographical areas, you can lower the risk that an economic downturn wipes them out.
Another important lesson is that working with professionals can be very useful. Like the farmers who took the advice of expert agriculturalists, by working with an adviser you can invest in a more effective way, helping you to grow your wealth faster.
Furthermore, while amateur investors can sometimes see strong returns, they don’t typically do it as reliably as people who work with a professional. According to research by the International Longevity Centre, clients who sought professional advice were better off by £47,000 over a period of 10 years, on average.
This is because advised clients had a greater understanding of investing and so felt more confident in their ability to take risks, which led to higher returns.
As we discussed in our previous blog about the risks of investing based on unsubstantiated advice, one of the most important ways that working with an adviser can help is by acting as a sounding board. This can help you to get useful feedback about your investments, allowing you to make properly informed decisions to grow your wealth.
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