“There are three main things that you can do with your profits to create further wealth – retire debt, invest in greater dairy production, or invest off-farm,” he told a South Island Dairy Event (SIDE) workshop.
“All three have their place and over time you will probably do each of them to some extent.”
He said for many dairy farmers investing off-farm was a step into the unknown but it had many benefits. Asset diversification was the most obvious but investing off-farm meant learning about a different business and the lessons learnt could be brought back onfarm.
“Off-farm investment may make you look at your dairy business differently and how you measure its performance as an investment.”
He said many retiring farmers were at a loss about what to do with their money.
“People really struggle with it. They’ve taken the proceeds from the farm which they have generated during their whole lifetime and they have to find a way to use it to give themselves a steady income.”
He said if off-farm investment was done earlier then farmers were more aware of the possibilities when they reached retirement.
“Also for succession it helps, as it can be hard to divide one farm amongst many children but if there are off-farm investments these can be used to balance it out.”
A diversified investment portfolio also lessened risk which was important, especially in later life when the ability to earn money to cover losses by working was diminished.
However, volatility was not something to be afraid of because with it came opportunities.
“Most importantly make a plan and stick to it.”
Use advice when buying shares but do as much as you could yourself.
“Don’t buy shares, buy businesses,” he said.
“I don’t buy shares in companies where I wouldn’t buy the whole business if I could. Learn about these businesses before you buy.
“The sharemarket can be quite insane and often to make money you will be going against the tide. Buy in gloom, sell in boom, and don’t forget Warren Buffett’s two rules of investment – rule number one, don’t lose money and rule number two, don’t forget rule number one.”
