One of the key problems for farmers is what to do with their money once the farm is sold. There will be a lot of farmers exiting the industry over the next few years given the average age of farmers is now closer to 60 than it is to 50.
There are a number of options available, but they are all relatively confusing if you are not used to that sort of thing. When you are investing money, one of the key things that I think you need to do, is look at the agenda of the people who are advising you, and ask yourself the following questions:
With your investing, you need to think about the impact of rising fuel costs on your investment and also the impact or any exposure to the New Zealand dollar. When investing your money with lenders, it is important to realise that some of the emerging finance companies could be in trouble, the first being National Finance 2000, who have gone into receivership.
I have talked extensively with Andrew Bateman, a colleague, who is from Spicers Wealth Management. He is an ex bank manager, who worked for Westpac and National Bank, but has now worked for Spicers for a number of years. He also has a NBA and well qualified to advise. Some of the options that he came up with are as follows:
You could consider not selling the farm, but leasing it to your son/daughter/family, or to an independent party altogether. You would need professional advice for the lease document, as well as all the necessary things that go with leasing a farm.
You could be your own bank and lend your money to the new purchaser. That way you would receive a commercial return on your investment and also you would have a first mortgage over the farm that you have previously farmed/owned.
You could invest in commercial property (there are philosophies on the Fraser Farm Finance website about investing in commercial property) but you need to be knowledgeable about what you are doing. There are some risks involved. You would be looking at your return, which could be 7 or 8% and you will need some skills in property management together with some local knowledge.
You could put the money out at fixed interest. The issues there are:
You could go into shares. You can invest in New Zealand shares or off-shore shares. You need to think about the risk and your knowledge base. Also consider the issues around Mr Cullen's new tax regime. You could be encouraged to invest through a managed fund, where you are taking the advice of professional people to look after your investments. In other words, you may be better to get someone else who is qualified, known to the industry to invest your money to get a return for you, rather than taking on unchartered territory.
You could go to a well-known respectable, reputable, large investment house, who can construct a portfolio of options for you that may include fixed interest, shares, commercial property etc. They would be in complete control of your money and you are relying entirely on their ability to get your return on your investment. For those who have no experience in the market, it may be a good option.
Some of the other issues that I discussed with Andrew about investing money are:
If you don't have a home for your money, he recommends that you park it in your bank, or somewhere suitable for 90 days. This gives you an opportunity to go on holiday, collect your thoughts, think about what you are doing and then make logical decisions. The sale of a large farm is emotional and stressful enough without having to decide where you are going to put all your money on the date of sale. I think that this is very good advice. Make an agreement with yourself to park the money for 90 days to consider your options.
You need to think about what is important to you, ie: Travel, Charity involvements , How do you want to live?, Do you want to leave the money to the children?, Are you going to have family trusts?, Etc.
Andrew also recommends that you remove the clutter and allow time to settle down. Then complete a written plan, as you can't really compare all the options in your head, your heads not big enough and there is no calculator in there. Also as part of this process, you need to watch out for pressure from people wanting to invest your money to get a return for themselves.
You need to protect your assets as well. You need to review your wills, look at your trusts and ownership structures of your properties. This will involve the cost of people like Fraser Farm Finance, your Solicitor and Accountant, but it is money well invested to get it right.
When you are looking at where to invest your money, you need a strategy, you need security, you need growth, you need regular income and flexibility. Finally, you need the courage to do it, procrastinating and leaving the money in the bank at low returns long term is not a solution. You need to make your plan and then make your decisions and act on them.
Finally, you need to review your investments annually and put effort into that process as well.
So in summary, having sold your farm and got a lot of cash, deciding where to invest your money is probably one of the more major decisions you are likely to have to make. There are a lot of options and a lot of fish hooks. You need to be wary and careful. Once you have made your decisions and completed a plan, then you need to action it, make the investments and get your money placed, then you need to review it annually.
Also, importantly, you need to review the ownership structures and your wills and trusts, to ensure that your asset is protected for the future.
There are a number of options available, but they are all relatively confusing if you are not used to that sort of thing. When you are investing money, one of the key things that I think you need to do, is look at the agenda of the people who are advising you, and ask yourself the following questions:
- What's in it for them?
- What are they getting out of it?
- Is their advice independent?
- Are they investing your money to get a return for themselves?
With your investing, you need to think about the impact of rising fuel costs on your investment and also the impact or any exposure to the New Zealand dollar. When investing your money with lenders, it is important to realise that some of the emerging finance companies could be in trouble, the first being National Finance 2000, who have gone into receivership.
I have talked extensively with Andrew Bateman, a colleague, who is from Spicers Wealth Management. He is an ex bank manager, who worked for Westpac and National Bank, but has now worked for Spicers for a number of years. He also has a NBA and well qualified to advise. Some of the options that he came up with are as follows:
You could consider not selling the farm, but leasing it to your son/daughter/family, or to an independent party altogether. You would need professional advice for the lease document, as well as all the necessary things that go with leasing a farm.
You could be your own bank and lend your money to the new purchaser. That way you would receive a commercial return on your investment and also you would have a first mortgage over the farm that you have previously farmed/owned.
You could invest in commercial property (there are philosophies on the Fraser Farm Finance website about investing in commercial property) but you need to be knowledgeable about what you are doing. There are some risks involved. You would be looking at your return, which could be 7 or 8% and you will need some skills in property management together with some local knowledge.
You could put the money out at fixed interest. The issues there are:
- Where is it safe?
- What are your risks?
- What return are you expecting?
- Is the money liquid, or is it going to be locked away for 1 – 2 years?
- Is it accessible?
- Are you going to put it with traditional banks, or go to higher risk with higher return with some of the alternate lenders?
You could go into shares. You can invest in New Zealand shares or off-shore shares. You need to think about the risk and your knowledge base. Also consider the issues around Mr Cullen's new tax regime. You could be encouraged to invest through a managed fund, where you are taking the advice of professional people to look after your investments. In other words, you may be better to get someone else who is qualified, known to the industry to invest your money to get a return for you, rather than taking on unchartered territory.
You could go to a well-known respectable, reputable, large investment house, who can construct a portfolio of options for you that may include fixed interest, shares, commercial property etc. They would be in complete control of your money and you are relying entirely on their ability to get your return on your investment. For those who have no experience in the market, it may be a good option.
Some of the other issues that I discussed with Andrew about investing money are:
If you don't have a home for your money, he recommends that you park it in your bank, or somewhere suitable for 90 days. This gives you an opportunity to go on holiday, collect your thoughts, think about what you are doing and then make logical decisions. The sale of a large farm is emotional and stressful enough without having to decide where you are going to put all your money on the date of sale. I think that this is very good advice. Make an agreement with yourself to park the money for 90 days to consider your options.
You need to think about what is important to you, ie: Travel, Charity involvements , How do you want to live?, Do you want to leave the money to the children?, Are you going to have family trusts?, Etc.
Andrew also recommends that you remove the clutter and allow time to settle down. Then complete a written plan, as you can't really compare all the options in your head, your heads not big enough and there is no calculator in there. Also as part of this process, you need to watch out for pressure from people wanting to invest your money to get a return for themselves.
You need to protect your assets as well. You need to review your wills, look at your trusts and ownership structures of your properties. This will involve the cost of people like Fraser Farm Finance, your Solicitor and Accountant, but it is money well invested to get it right.
When you are looking at where to invest your money, you need a strategy, you need security, you need growth, you need regular income and flexibility. Finally, you need the courage to do it, procrastinating and leaving the money in the bank at low returns long term is not a solution. You need to make your plan and then make your decisions and act on them.
Finally, you need to review your investments annually and put effort into that process as well.
So in summary, having sold your farm and got a lot of cash, deciding where to invest your money is probably one of the more major decisions you are likely to have to make. There are a lot of options and a lot of fish hooks. You need to be wary and careful. Once you have made your decisions and completed a plan, then you need to action it, make the investments and get your money placed, then you need to review it annually.
Also, importantly, you need to review the ownership structures and your wills and trusts, to ensure that your asset is protected for the future.
