By Carl Lachman, MBA, CFP®

Farming is Not Easy

Our founder, Bill Camp, originally was a farmer in the Central Valley of California before he changed careers and started Eclectic Associates. Farming is not easy: the days are long, it takes a lot of hard work, a crop is often totally dependent on the timing of rain, and sometimes the difference between success and failure is a narrow margin. Farming also teaches you things, whether you want to learn or not.

Although he never told me this, I have to believe Bill’s experience as a farmer had an influence on how he decided to give financial advice and manage investments. Here are some of the ways I think Bill’s start in farming has influenced Eclectic Associate’s fee-only financial planning and investment management.

Seasons Come and Seasons Go

We sometimes joke there are only two seasons in Orange County, California: night and day. Farmers, however, have a life that is dictated by seasons, even in California. Spring is the season to plant, Summer is the season for growth, Fall is the season for harvest, and Winter is the season for resting and getting ready for the next time to plant. A farmer cannot control the seasons, but is ready for them and does his best to do the right thing during the right season. I think his experience with farming seasons caused Bill’s approach to financial planning and investing to understand the phases of life and financial market cycles better than many others.

At Eclectic we consider the phases — seasons — of our clients’ lives from the very start. Our financial plans are written for our client’s current financial situation, but we immediately plan for their future goals and retirement. We consider current assets and liabilities, the career and saving path a client is following, the big expense goals in the future, and use projection analysis to determine what it will take to make the desired retirement a reality.

And, just like a farmer cannot change the seasons, we manage our client’s investments knowing we cannot control financial market cycles. Rather, we put together investment portfolios from the start that we have confidence will do well in the long run, even if the markets swing up and down in the short run. We plan for those cycles and we are not surprised when they come.

Like the farmer who is constantly getting ready for the next season, as investment managers we are always getting ready for the next market cycle. The way we get ready is through a consistent and disciplined allocation approach and portfolio rebalancing. We determine a good mix of investments — an allocation — for each client, and we manage to that allocation with percentage targets for each category of investments. A simple portfolio allocation is 50% equities and 50% fixed income. If equities go up and are now at 55% with fixed income at 45%, we rebalance, selling equities and buying fixed income. It’s a discipline that forces us to sell what is high and buy what is low, and it is the right thing to do both when the market is up and down.

The Early Bird Gets The Worm

Farmers work from before sun up to after sundown. So, they know that worms often come out of fertile soil at night and disappear back into the soil at sunrise. They see the birds having breakfast on those worms when it is still a little dark, just before the sun rises. Farmers, like the morning birds, only survive if they get started early and work hard.

Bill brought that work ethic to his new business and impressed its importance on his employees. Today, our team of advisors and support staff have the same work ethic in all we do for our clients. We conduct in-depth research into the investments we recommend. We seek out innovative ways to help our clients arrange their finances to reach their goals. We look for new tax approaches that are more efficient and save money. We attend continuing education conferences and study groups. And, we proactively make investment changes and suggest financial strategies before our clients ask. Although they don’t always see the work we do, our clients see the “fruits” of these labors on statements, tax returns, estate plans, retirement projections, and in the peace of mind they experience.

Don’t Bet The Farm

If a farmer is making a decision that could cause him to lose his entire farm if it goes bad, he is betting the farm. Farmers that do that usually don’t last long. It is putting too much at risk with one decision. Every farming community has stories of a farmer who made a big, bad decision and lost their farming livelihood.

Bill Camp surely saw this happen and learned from others’ mistakes. The way he chose to invest client assets instead relied on many small investing decisions, where some could be wrong but the client’s portfolio could still do well. It’s the principle of diversification and it is a foundational part of our investing approach today at Eclectic.

Even without betting the farm, there are risks in farming. Rains might not come, seeds can be bad, insects can spoil crops, fertile soil can wear out, and crop prices can fall. A farmer needs to be strategic, understand the risks he faces with his limited resources, and do his best to minimize those risks.

From the start of our company, the mindset of taking measured risks and using strategies to minimize those risks has been part of what we do. For instance, if a retired client has more money than they will ever spend, it’s probably best to have a lower risk portfolio that still stays ahead of inflation. We minimize the risk of inflation with the investments we choose. Alternatively, if a younger client still has 40 years of working before them, a higher risk portfolio might be appropriate since they have so many years of saving yet ahead. The more aggressive portfolio risk is minimized with disciplined rebalancing. And, if a client has a large known expense in the future, we can sell investments at different times to minimize taxes, keep the rest of the portfolio in balance so overall gains are not missed, and use stable, interest bearing investments so the money is ready when needed.

Important Values for the Future

While some of what Eclectic Associates is today might be explained by our founder’s background in farming, don’t let that make you think we are stuck in the past. Rather, our 40 year old company has foundational values that are right for today and whatever the future holds. We are prepared for future market cycles. We plan for upcoming phases in our clients’ lives. We have a work ethic that seeks to do right by our clients. And, while we take appropriate risks to accomplish client goals, we strategically minimize those risks through advanced techniques.

If you know someone who could use some advice with the financial decisions they are facing, please send them our way. We are happy to meet with anyone for a free, no-obligation meeting. Have them call us at 714-738-0220 to schedule a meeting, or they can click here to schedule an introductory call with one of our advisors.