Off Farm Investment
A common mistake of investors is to treat bank deposits as investments. While it is very safe, the conservative nature of this type of investment and relatively low interest rates offered by most banks mean investors (after tax and inflation are taken into account) only provide a real return of 1% or less.
To invest well, you generally need to take some risk and use a diversified range of growth-type investments. The type of investments need to suit your timeframes and goals in accordance to your risk profile tolerance.
Property investment is popular with New Zealanders. However, it is more effective in larger cities such as Auckland, Wellington, Christchurch and strong rural towns such as Ashburton. The informative article below explains in further detail. Rental properties in provincial New Zealand may well be cheap and rents cover the mortgage but, if you are investing with the intention of earning substantial capital gains to allow you to make future farm land purchases, then provincial properties may not keep up with inflation of desirable farm land. This is as indicated in this article from Interest.co.nz.
The solution may be a move to a commercially diversified portfolio. Many of our clients use JMIS Select Wealth Management wrap account. These are just two of the Select property funds that have great returns.
|1 Year Return||3 Year Return||5 Year Return|
|Kiwi Income Property Trust PIE||16.33%||11.65%||10.33%|
|OneAnswer Property Securities Fund PIE||16.20%||16.71%||11.43%|
Please note the returns are before tax and after manager fees as of 31st October 2014
Farmers are great investors, they understand the ups and downs of market seasonal varieties and economic cycles. Farmers enjoy boom and suffer bust years—great profits and sudden losses often caused by nature such as floods and droughts.
In the early years of farm ownership it was possible to achieve growth even with high debt levels and high land prices. However, farmers can face the risk of losing bank support in poor years with reducing cash flow and fluctuation in equity. As a farmer’s age and equity in the farm improves there is the temptation to buy more land. However, this is the time to expand into a well-diversified portfolio of investments, sometimes called security assets, rather than buy more land. The portfolio must match your individual risk tolerance and include an appropriate proportion of shares, bonds and commercial property both within New Zealand and offshore.
While it is rarely mentioned, Treasury has analysed the effects a foot-and-mouth disease outbreak would have on the New Zealand economy and its farming base. The findings present a solid case to back up the preference that off-farm investments should be offshore, as the best line of defence.
Starting your off farm investment
It is always advisable to setup systematic regular monthly investment, this is always better rather than relying on “spare” capital at the end of a year. This helps ensures retirement and succession goals are met. Premier Rural promotes the use of Select Wealth Management (Select) wrap account.
Select has been one of New Zealand’s leading investment and administration platforms for financial advisers and their clients. Select is designed to cater for the differing needs of investors, and they do this by offering a choice between ‘ready-made’ and tailored portfolios. The Select wrap account is one of a number of similar type systems administrated under Aegis Limited providing administration services to more than 16,000 investors with over $9 billion of invested funds.
I believe the key to Select uniqueness and performance is that it has always operated with JMIS Limited, independent investment consultants who approve and selects from all funds available along with the assets allocations of the Select Portfolios. As an adviser, it is always encouraging to see low performing funds dropped and that they do not regain selection unless their performance improves and they meet strict criteria.