10 June 2021
Farming is one of the most volatile industries in the world so considering off-farm assets such as a diversified investment portfolio is one strategy farmers can use to help achieve long-term success and financial freedom.
When you are as dependent on weather as farmers are, it can be very difficult to plan too far ahead. Commodity prices and livestock prices can also have a major impact on the profitability of your business from year to year.
Investing in off-farm liquid assets, such as shares, managed funds and bonds is a simple strategy you can use to potentially earn a higher long-term return.
All too often, I see Mum and Dad hand over the farm to their children without getting anything in return. This often results in Mum and Dad struggling in retirement as they haven’t built up any off-farm assets to meet their needs in retirement. They remain reliant on the farm’s profits to assist in meeting their retirement needs, along with their children’s immediate cash flow needs.
Additionally, if Mum and Dad haven’t built up any off-farm assets, their children can be forced to borrow large amounts of money to purchase the farm. Should this coincide with droughts or poor years, it can put a lot of pressure on the children to keep their heads above water and to carry on the farming operation that may have been in the family for several generations.
If Mum and Dad had invested in off-farm assets, they would be able to draw an income stream from an investment vehicle that had been built up over many years. That way, they could hand over the farm if they wished to, and not have the financial strain that may come with it.
So, next time your farm has a profitable year, consider whether it’s worth purchasing further parcels of land or upgrading equipment you don’t really need. Instead of tucking away your profits, think about how a diversification strategy could increase your farm's longevity by helping to support your retirement and giving your children the best opportunity to succeed when they take over the farming operation in years to come.