By Martin Hawes
The idea of off-farm investments has been around for decades. This is with good cause – there are many reasons for farmers to think about making investments off-farm. At a fundamental level, the way that you decide to allocate your capital is probably the most important thing that you will do, and the idea of diverting some capital to off-farm investments is a good one for many people.
Moving some capital from the farm and into completely different areas can give advantages: investments in non-farming assets can be used for succession purposes – i.e. one of the children may wish to take over the farm while the other who has little interest in farming, can benefit from the proceeds of off-farm investments.
There are many advantages to holding a range of off-farm investments through the years of farm ownership. Some of these may include helping children through tertiary education or into their own careers or business.
Off-farm investments are often more liquid than the farm and are therefore usually more readily accessed. These investments can, therefore, provide a counterweight to the one big asset you own, the farm. This is particularly so if investments are made into listed companies through share markets, whether in New Zealand or globally. Holding an amount in investments which can be cashed up quickly if needed can be especially useful for farmers whose cash is often committed in large and illiquid assets such as farms.
Owning such investment diversifies capital away from agri-business and into other industries which might be less affected by a downturn in farm commodity prices. This is particularly so if funds are invested internationally – as such, these off-farm investments can tide you over if or when there is a bad period in farm performance.
Starting off into off-farm investments may seem scary, particularly when financial markets are volatile – it is a step into unfamiliar territory for a lot of people. However, most of us are going to need to use this kind of investment at some point in our lives: when the farm is sold (or passed on to the children) we will need to invest capital in this way for income in retirement. Better to learn about this early, rather than later.
KiwiSaver is a good place to start. Provided you are aged 18 – 65, the government will also pay 50 cents (up to $521p.a.) for each $1 you contribute regardless of whether you are in work. Perhaps just as importantly, you ought to be able to watch how your KiwiSaver is invested and learn from this.
Ultimately, I always like to see farmer clients start to build their own portfolios and build quite significant off-farm investments. Although these investments are unfamiliar (and often clouded by jargon) people should take advice from an Investment Adviser.
With this in mind it is often a good idea to adopt a savings plan so that a defined percentage of profit or income (perhaps 10% p.a.) is swiped off into off-farm investments. When an off-farm portfolio is established, this is easily done and such regular savings will in time become a tidy sum to help with wealth creation.
- Article from Federated Farmers strategic partner Forsyth Barr
Martin Hawes is not a Financial Adviser or a Financial Advice Provider and the views in this article are not intended to be financial advice. The views and opinions are general in nature, and may not be relevant to an individual’s circumstances. Before making any investment, insurance or other financial decisions, you should consult a professional financial adviser.