Online savings accounts, shares, property, managed funds, government & corporate bonds, physical commodities – these are all the places that a modern investor might store their wealth. Nearly all of them are only a mere click of the mouse away thanks largely to the internet.
But one of the original forms of investment was in fact farming. Land, livestock and crops are both stores of wealth and providers of income. I have a number of farmers as clients and colleagues today and I can tell you they remain some of the smartest financial planners and investors you’ve ever met. What a farmer knows, and an investor should too is:
1. You need good planning and preparation
You can’t just throw a ram in with your ewes and hope for the best. First of all, you need to know if your plan is to sell fat lambs (for meat) or if you’re going to sell fleece to be turned into wool. This will affect both the time that you want your lambs to be born, and also the decisions around the right breed for your purpose. So in short, you need to know the reason you’re investing.
You’ll also need to know whether there’s enough feed on the ground to support your flock, or if you’re going to have to buy in additional feed. This will affect whether it’s a sensible proposition and right for you – the circumstances in which you invest matter.
2. Diversification is a cornerstone of risk management
“Don’t put all your eggs in one basket”
It’s a phrase that has been become so associated with our investments and spreading the risk that we don’t stop to think where it came from.
I suspect it originated after a farmer dropped a basket full of eggs on the ground that contained a large portion of the day’s production!
You will often find that many farmers run a combination of different crops or stock on their land. They know that in the time between planting and harvesting, or the time spent raising stock, commodity prices will shift so it helps to have a few different crops or stock to sell at market when it’s time to raise some cash. You can’t control the market that you need to sell into but you can really help your outcomes by making sure there are a few different options available.
Farmers are also some of the smartest investors when realising that aside from their on-farm business it is healthy to have a good supply of other investments such as cash, shares and property.
3. Your assets won’t do all the work for you
Making your money work for you is smart, expecting it to do all the work is unrealistic.
If you’re running stock you’ll need to make sure they’re protected against pests and infection. Crops need to be monitored for adequate water, harvested, packaged and shipped to markets. Just the same you need to monitor your investment assets and make sure that they remain fit for purpose. Keeping an investment property up to date so it remains an attractive rental is vitally important. Knowing whether your share or managed investment portfolio is still appropriate for your needs will prevent unwanted surprises down the track.
Every crop or batch of stock is a new learning experience for a farmer on how to do it better next time. Likewise as an investor you should make sure you’re regularly improving your knowledge about the assets and markets that hold your hard-earned capital.
I will say that as a farmer, I make a much better financial planner, but I do like to learn.
Every year I participate in what we’ve termed Farmy Reserves. That’s where for one weekend a year I travel out to a friend’s family farm in Leeton (Western NSW) to help with lamb marking – where all the recently born lambs are given their injections, tags and treatments.
Last year I even had my first go at shearing a sheep at a property off the Barton Highway, there’s photo evidence below!