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Growing wealth to buy a farm, preserving wealth when exiting | EP 08

Young farmers aspiring to own a farm should consider off-farm investments as a way to build equity for their deposit. 

That’s one of the take-home messages from episode eight of the Federated Farmers Podcast. 

Forsyth Barr financial adviser Michael Raynes, our guest this week, says there are credible alternatives for growing capital outside of traditional pathways like sharemilking or simply saving money in the bank. 

“If you’re building up towards ownership of a farm, that in itself comes with a concentration of risk because you’re very much tied to commodity cycles,” he says. 

“Off-farm investment, particularly as a way to build wealth, is something for people to consider.

“It’s good for diversification and accessing other opportunities.”

Raynes encourages young farmers to think about putting some money into a managed fund. 

That allows them to pool their money with other people and invest in a wide range of assets.

He explains that most managed funds in the New Zealand market will be Portfolio Investment Entities (PIE), which provide certain tax benefits for investors.

Being able to access that money easily is another advantage, he says. 

“Your money isn’t locked in. That flexibility and access to capital is really important when an opportunity comes up and you want to capitalise on it.” 

Raynes moves on to talking about why KiwiSaver is another tool for young farmers to grow their wealth, providing a structured and disciplined way to save. 

“I think young farmers should absolutely have KiwiSaver as a plank in their savings and retirement plans. 

“Your employer’s required to put in a minimum of 3% if you are, and as long as you’re putting in effectively $20 a week, you’ll get the $10 a week from the Government, which is up to $521 a year. So, it’s always nice to get something back from the Government.”

In the second half of the episode, Raynes shares advice for those at the other end of their careers: exiting farming. 

He encourages those selling a farm to seek financial advice as early in the process as possible, rather than waiting until the farm is sold. 

“Doing that research, understanding your options and knowing what’s available while you’re going through that sales process can only help with what life after farming looks like.” 

Moving off the farm is a big transition and many aspects of it can be daunting, including how you’ll manage your wealth and use it to generate income, he says. 

“If you can be thinking about this stuff and talking about it with your key advisers, then when you receive the proceeds for your farm sale, you’re educated, you know what you’re about and you’re ready to do something.” 

Raynes then spends some time explaining the process he goes through when advising farmers exiting the industry. 

That includes finding out who they are, if they’ve invested in the past, how much they understand and can tolerate risk, and if they know what they want from an investment portfolio.

He says couples are often at opposite ends of the spectrum when it comes to risk comfort levels, and his job involves helping them find some middle ground. 

Raynes goes on to talk about common financial mistakes people make when they sell the farm, one of them being not having a plan.  

Another mistake is simply letting money sit in the bank. 

“Right now, term deposit rates are the highest they’ve been in 10 or 15 years, but invariably, over the long term, cash doesn’t keep up with inflation and your spending power gets eroded.”

Raynes concludes by sharing his views on why and how farmers should stay engaged in their investment portfolio. 

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