Investing: Making a killing off-farm

DAIRY 101 INVESTMENTS

Making a killing off-farm

Story and photos by: Karen Trebilcock

So we’re experiencing one of the highest dairy payouts for years and, after you’ve paid off that principal on your debt you’ve been meaning to do, what to do with all that cash?

Firstly, I’m not an investment manager, I have no training whatsoever so disclaimer, disclaimer, always consult an expert.

But if you do not yet have a Kiwisaver account have another think about it.

KiwiSaver, also called free money from the Government, works just as well for the self-employed as it does for your staff. In some ways, it works better.

If you put in $1042.86 or more between 1 July and the 30 June each year, the Government will give you, yes, give you, $521.43. Not bad.

And being self-employed, you can choose when you put this money in.

What a lot of people don’t understand is KiwiSaver works on units.

When you put your $1042.86 in, you are actually buying $1042.86 worth of units.

The price of the unit changes depending on the fund you are paying into and hopefully they go steadily up.

However, when Covid-19 hit last year they dropped and everyone saw their KiwiSaver balances do the same.

At the bottom of the drop was the best time to stick that $1042.86 in as a few months later, as the unit price again increased, it was worth a whole lot more.

Salary and wage earners don’t have that ability – they are paying the same amount in every week, although they also have their employer’s contribution, which is the downside of being self-employed.

WHAT TO INVEST IN

So that’s a thousand and a bit dollars sorted out, what to do with the rest?

Well, as they say, that’s the million dollar question.

With the best bank interest rates at about 1%, sticking it in the bank is not attractive.

There is the share market and with apps for your phone such as Sharesies, it’s now a lot easier than having to email or phone your share broker.

Plus, while you are waiting for that slow cow to milk out, you can check your balance.

But the share market, both here and internationally, can be like going to the casino and the same rules apply. Only take with you the money you are prepared to lose. You have no control on how much you will earn or lose and a lot of the time it doesn’t make any sense.

Why did this share go up or down? It should be about the company’s balance sheet and the dividend it’s paying, but a lot of the time it seems simply because people think it’s a great company to invest in, or not.

There are managed funds you can buy into which spread the risk across a number of companies’ shares (which Sharesies also does), and the growth funds of KiwiSaver do the same.

Whether you invest in one of these and pay the fees, or come up with your own portfolio, remember that fund managers get it wrong too, no one predicted the timing of Covid-19 and no one can see into the future.

And if they could, they would just buy a Lotto ticket. The good thing about shares is the money you make buying and selling them is not taxed as a share is classed as an asset (the dividend you receive from the shares is taxed).

The bad thing about shares is the money you lose buying and selling them is also not taxed – you can’t claim it as a loss against your business.

‘The share market, both here and internationally, can be like going to the casino and the same rules apply. Only take with you the money you are prepared to lose. ‘

Far left: There’s much to choose from in the housing market. Left: You can check on your share investments now while boiling the jug, or waiting for a slow cow to milk out. Right: We’re experiencing one of the highest dairy payouts for years.

GET ON THE PROPERTY MARKET

Of course, the darling of New Zealand investors is housing and it has always proved a winner. Never have we seen large foreclosures like in the US, or when mortgages were larger than the value of the house as in the UK. At least, not yet.

With house prices rapidly ramping up, New Zealanders are buying big and banks are letting them, even though the Government is pretending to try and stop it.

There are lots of options. You can buy the classic do-up – double glaze the windows, put some new carpet in, maybe a new kitchen, a fresh coat of paint and then sell it for way more than you paid for it.

Or you can buy land, build a house on it and sell it, or rent it.

Or you can buy and rent it.

Or you can just buy a house, leave it empty and sell it a few years later and cash in the capital gain.

All have tax implications so consult your accountant before you buy as how you structure your loan, especially with the government’s latest changes, will make a huge difference.

The big thing with housing is, unlike having your money in the bank, it takes up your time.

Tradies, tenants and even squatters in empty houses are all guaranteed to give you sleepless nights. One way of investing in housing though is a lot easier – buy a house and have a family member rent it from you. Your son or daughter’s rent is not taxed and, if you have brought them up with some skills and a sense of cleanliness, they won’t ring you every time a light bulb blows and hopefully the beer bottles will always end up in the recycle bin.

BUSINESSES, COWS AND FARMLAND

However, don’t just consider housing. You can use your money to invest in a start-up. It could be a café or a brewery or a new system to help milk your, and everyone else’s, cows better.

Maybe more risky, but who doesn’t want to be a part owner of a vineyard, a fishing charter, a book publisher or a really cool algorithm with an application programming interface?

Or, you can invest in cows or farmland. Remember those? Spread your dairy business by buying into an equity partnership, help one of your workers buy a herd or buy yourself a runoff.

Investing in your industry, helping it grow, makes sense. That worker you invested in could one day be the person buying your farm when you’re ready to retire.

Wherever you decide to put your money, remember it has an economic and social effect on the whole country.

People need houses to live in and playing with money on a social requirement should give everyone pause for thought.

Thanks to quantitative easing following Covid-19, there is a lot more cash swilling around the country and the higher dairy payout will only add to it.

Because interest rates are so low, most of it is getting poured into housing and the sharemarket to the extent that many believe both are now overvalued.

If the bubble bursts, and when, is anyone’s guess but if we, as a country, diversified our investing it wouldn’t happen or at least, if it did, the effect would be muted.

When it comes to spending your cash, don’t forget your cows.

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