February 2023
Priscilla grew up on a family farm in Iowa. When she was nine years old, a hailstorm destroyed her family’s crops. However, their milk cows, beef cows, hogs, and hens offered different streams of income and therefore sheltered them from an otherwise financially devastating situation. Priscilla says although investors cannot control external circumstances, they can control the allocation of their investments and the amount of diversification in their portfolio to hopefully mitigate risks.
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Hello, everybody, and welcome to another episode of The Financial Commute. I'm Chris Galeski, your host, joined by Wealth Advisor Priscilla Brehm. Priscilla, thank you.
Thank you.
You know, as we were talking, 2023 is off to an interesting year. Stocks and bonds have made somewhat of a rebound from last year, but a lot of the themes or conversations still hold true around making sure that people are diversified, that they don't own things that all kind of move up and down together.
You and I have had some interesting conversations about diversification. Why don't we start there?
Okay. Well, one of the things that we talked about, Chris, is that you can learn about diversification in investing by learning lessons from your life. Right. Yeah. I grew up on an Iowa farm. That's where I got my first lesson in diversification. You're a professional golfer.
I was a long time ago. But, yes.
Yeah. And you know, so we were talking about some of the things that you learned as a professional golfer. So the message really is that you don't have to learn about investment diversification just out of a book or in a college class. You can draw from your life and lessons you've learned in your life.
Yeah, I love the way that you phrase that in terms of learning about diversification through lessons in life, but being able to reflect back and connect the dots and that was the key point. Yeah, because sometimes we live through our lives and, you know, things happen and we don't always connect the dots, but there are a lot of dots to connect there.
Absolutely.
So before we get into your story about kind of diversification, growing up on the farm, a lot of people tend to use golf in the analogy of diversification, saying, hey, you know, you don't want to just play golf with two clubs, right? You want to be able to use all 14. Right. And I think that makes sense for some people, especially people that just use stocks and bonds to invest.
They're just limited by the rules of golf. Well, we don't like those rules, so we throw the rulebook out the window. And so when I'm thinking about diversification from Morton's viewpoint, I don't just want those 14 clubs. I want to be able to use a shovel. I want to be able to throw it or kick it or do anything I possibly can to get that ball in the hole because
Rules don't matter, right?
Yeah, exactly.
So anyways, I just love that part of that conversation. Yeah. So let's talk about learning about diversification through the lens of growing up on a farm.
Okay. Well, there's a story that I always like to reflect on that came from my time growing up on a traditional family farm in northwest Iowa. And on our farmhouse, we could stand on the back porch. We had this enclosed back porch. So it wasn't open to the elements, but we'd stand on our back porch and look out at the fields.
And depending on what color the fields were, regardless of the temperature, you could tell what time of year it was. Right. In the winter, you'd look out and it was solid white because it was, of course, covered with snow. And then in the early spring, the snow would start to melt and black Iowa soil would start to peek through.
And then right around that time when we would plant, it was just, you know, solid black soil as far as you could see. And then in the later spring, after the seeds had sprouted, you had these little narrows of green that stretched across the black soil. And then as summer progressed, it got greener and greener and greener until all you could see was green.
So there was one summer I was, you know, maybe eight or nine years old. And it had been a really good growing season. And so as far as you could see, it was just brilliant green. And my mom and I, my mother and I were standing on our back porch looking out at the fields, and we could see my father in one of the lanes between the corn and soybeans in his bright orange Allis-Chalmers tractor.
I think he was fixing a fence or something. So we also saw beyond him these black storm clouds that came up on the horizon. And as the storm clouds approached, my dad looked up and saw them in the distance, hopped on his Allis-Chalmers tractor and came racing towards the house. And it looked to me at nine years old like the storm was chasing him.
Right? And so I was a little scared. I actually was terrified.
Sure.
Well, he made it to the house just as the storm hit. And this was not just an ordinary storm. This was wind and hail and rain. And so we watched that storm come through. And behind that wall of wind and hail, the green crops got pounded into the dirt. And so gradually it was black soil behind the wall and then green in front of it.
And so my mother burst into tears and my father sort of gave her a hug and patted her awkwardly on the back. And I'm nine years old. I didn't know what to do. So I hugged them both and I thought, okay, two things. Thank you for keeping my family safe. You know, that was the priority, right? Everybody was safe.
But I also wondered, will we be able to afford new school shoes for me this fall? Right. And so those were my two thoughts as a nine year old, what I did not know is that my father had a plan and he had hail insurance. Now, the hail insurance didn't cover the total loss on the crops. But there was hail insurance.
But here's what else we had. We had milk cows. The milk cows were safe in the barn and we had beef cattle. They were fine. We had hogs. They were safe in the hog house. We also had hens that were safe in the chicken house. And these barns, these buildings were scattered around the farmyard. So they were not all in the same location.
So that night my mother went out to the hen house and gathered in the eggs and my dad went out to the barn and milked the cows. And so we had these streams of income coming in, even though we were not going to have much, if any, crop.
Right.
We had other sources of income that were not impacted by the hail and the wind that swept through.
Wow. That's such a fascinating story. I mean, I didn't grow up in the farm, but I think maybe all the books that you read or even the children's books, everything's all consolidated one spot. But you're telling me that some of these are scattered across the farm? Yeah. So that way when there is an issue, they don't all get hit.
That's fascinating. So it's kind of like diversification by income streams, but also asset location, making sure that they're in the right space. So making sure certain investments are in the right account so you can take it further.
Well, and conversely, let's say it had been a tornado that came through. The livestock would have been gone, but the crops would have been fine, you know, So you can't control the weather. Really important to recognize what you cannot control, but you can control what you do about the things you know, the risks that you face. And, you know, there are lots and lots of risks as a farmer.
But I just love that story about diversification, making sure that you're protecting yourselves by the right location of certain assets, even owning some insurance to help protect you as well.
Yeah, yeah. Transfer that risk to the insurance company. We don't know if there's going to be hail. Yeah, but if you have insurance and there is hail, then at least you get something.
Yeah, that's fantastic.
By the way, I did get new school shoes.
Did you? Yes. What color were they, do you remember?
Oh, they were always brown.
Yeah. I guess when you're running around in the dirt and everything, it's probably better.
I didn't wear my school shoes in the dirt. They were just, you know, here to school. And then I took them off as soon as I got home.
I love that story. I think I could visually, you know, see what you were kind of saying and then kind of put it all together. The world of investing, I feel like it can be so vague for so many people in terms of like, what is a stock or bond or how do I do this? And we hear the word diversification a lot, but we don't always put two and two together and what it means, and I thought your story was a great reflection on multiple different types of income streams, making sure that you were protecting yourself against a number of different issues that could happen by your livestock or certain things being spread out across the farm, and then also owning insurance to help protect you. Yeah.
Yeah. The other thing that I did not know at that time was that we had saved some of our crops from the prior harvest and those were actually stored out in different, you know, areas across the farm as well. Plus there's a grain co-op in town where you take your grain and all the other farmers stored there.
So we had a share of the stored grain in town. So we were really diversified.
How nice. So if you had an oversupply, you didn't need to sell you could then pool that with other farmers. And so if you had an incident or something came up, you’d still have a revenue stream.
Yeah. And you could determine when you would sell your share. You know, it wasn't actually the corn that you raised in your field, but it was your share of the harvest.
It's kind of like having an emergency fund.
Or kind of like a mutual fund. Yeah, you know?
Yeah. I love it. That was fantastic. Thank you so much for joining us, Priscilla. Hopefully everybody here learned a little bit more about diversification today. And I just love the stories. Thank you.
My pleasure.
Disclosure: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your financial, legal, and tax professionals before implementing any transactions and/or strategies concerning your finances.
