Seek advice before selling the family farm
Farmers intending to sell their property prior to retirement should consider long and hard on future aspirations well in advance of the actual sale date.
This goal setting exercise should ideally take place years before the farm sales process, rather than months, say Michael Regan and Christine Egarr, senior investment advisors with Craigs Investment Partners, one of the major players within the New Zealand financial investment industry.
In the first instance, advice might be sought from a trusted professional such as the family accountant or lawyer, who should be able to refer their clients to a specialist investment firm, they say.
‘‘Let’s say that we are talking about a couple here,’’ says Egarr.
‘‘They should think about what is important to them. Typically from our experience of various clients whom we have had here about to enter retirement, the priorities are family, travel and health.
‘‘I would add that it is possible to start diversifying off farm prior to the point of actually selling the farm.
‘‘As farmers about to retire, going through that sales process is reasonably stressful.
‘‘It can also be an emotional process and it’s not necessarily one where people can make those clear decisions about their options afterwards.
‘‘If pending retirees already have some ideas around the things which are most important to them and have already received some advice, this makes for an easier process in terms of their journey post retirement.
‘‘If the farmers are Fonterra suppliers there is also the issue of what to do with their investment in Fonterra shares.
‘‘Having an account in place and a strategy to deal with this before their compliance date is essential for peace of mind.’’
If the couple decide to invest with a specialist financial investment company, there other important considerations, says Egarr.
‘‘The professional advisor which that couple are going to work with may well be their advisor for the next 30 years, so it needs to be someone whom they trust, whom they can relate to and with whom they are comfortable asking questions of.
‘‘That advisor should be able to explain things to you in a way which they understand.
‘‘This will probably be a different person for different people.
Farmers, says Egarr, have come from a background which often gives them a keener appreciation than most on the cyclic nature of investment.
‘‘There are a lot of experiences which farmers have on farm over a lifetime of farming which actually can relate to investing outside of the farm, particularly when it comes to cycles,’’ she says.
‘‘Because of their farming experience, farmers do have an understanding that things do move up and down, and I think it is more a shift from farmers being able to look out their kitchen window in order to get a The adage that one should never place all of their eggs in one basket is as applicable today as when the saying was first coined, says Michael Regan, who has worked for Craigs for 35 years.
The answer, he says, is diversification through a balanced portfolio.
‘‘You diversify a portfolio by asset class, by sector, by geography and also by the issuer.
‘‘Typically, we don’t hold more than 2% to 3% with one particular issuer.
‘‘Let’s say New Zealand shares, for instance.
‘‘We will diversify across main shares like Auckland Airport, Meridian Energy, Fisher and Paykel Healthcare – a range of different companies which are in different sectors.
‘‘The other thing by having a balanced portfolio is that it protects the client from risk.
‘‘This includes the risk of inflation which erodes wealth over time.
‘‘A balanced portfolio sees the client through all of those different cycles.
‘‘However, there will always be things which can come from left field and probably the one I would take as an example, is the global financial crisis back in 2008 and 2009.
‘‘For example, if a person with a balanced portfolio had invested in August 2007, which was the beginning of the GFC, they would not have been back to that position until 2012.
‘‘Then from 2012 onwards, it just continued going up.’’ gauge on how things are going, based on the weather, based on the grass, based on cow condition, and based on how much milk is going into the vat, to moving to a life where they may receive regular reporting but it is in the form of sheets of paper coming through the mailbox or to the inbox on their computer on regular occasions.
‘‘Farmers are used to working in longer cycles and in fact an investment cycle is a long term cycle.
‘‘An investment cycle is typically 10 years.
‘‘When I work with my clients I always say that it will take 12 to 18 months for their portfolio to bed down and start acting as it should.
‘‘It (the portfolio) should be performing relative to strategy and if it’s not then you need to understand why.
‘‘There may be some short term issues but over a four to five year period you should be having some degree of result.’’