Young farmers aspiring to own a farm should consider off-farm investments as one way to build their equity for a deposit, a financial adviser says.
Forsyth Barr’s Michael Raynes 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.
“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, who joined the Federated Farmers Podcast, 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.
“If you’re starting out small or you have some surplus cash, managed funds are a great way to get started.
“You’re getting better diversification than you could by buying one or two shares on your own.
“Most managed funds in the New Zealand market will be Portfolio Investment Entities (PIE), which provide certain tax benefits for investors too.”
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.
“That’s a way to make your money work a bit harder for you than simply having it sitting there in the bank earning interest, which is capped.”
Raynes says 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.”
Raynes says he’s aware Federated Farmers and others have been asking the Government to change the rules so young farmers can use their KiwiSaver to buy their first farm.
That’s an “interesting concept”, he says.
“The farm and the house often go together, right?
“It’ll be interesting to see where that conversation goes, and I think it’s one worth having.”
Federated Farmers, New Zealand’s leading independent rural advocacy organisation, has established a news and insights partnership with AgriHQ, the country’s leading rural publisher, to give the farmers of New Zealand a more informed, united and stronger voice. Federated Farmers news and commentary appears each week in its own section of the Farmers Weekly print edition and online.
