I took a run at this topic a couple of years ago but think it is worth another run. This past year I have seen ads for many auction sales of former students, colleagues and friends. They have all recognized a once in a lifetime opportunity. Anyone long enough in the tooth has seen the cycles at least a couple of times and recognizes that the party will end. Wait too long to sell and you will not live long enough to catch the next peak.
As Alf Bryan often said, “I may be wrong, but…” I think the party will soon be over.
With today’s land prices, even a modest recent farm sale generates a few million dollars, even after capital gains taxes. Farms have a significant exemption. And capital gains is the best tax you will ever pay — they divide by two before calculating what is owing.
On many family farms the gravy of the good years is poured back into the farm and there might be little experience with off-farm investments. Based on my experience with investments, what follows are some things to think about. Remember, I have no credentials in investing.
Yes, plural. From my experience, it is best to have two or more financial advisers. I have had occasions where two advisers gave exactly opposite answers to the same question. If you have only one, how do you judge? There are very rare examples where trusted friends or even family have ran off with investors’ money, but for the most part financial advisers are honest folks who are trying to do the best for their clients. But, a second opinion is important.
Fees and charges
In the first meeting with a financial adviser you should ask how they are paid. Fees, commissions and trailers are all part of the game. Many transactions are said to be “no charge,” but the charge is just hidden. Lack of transparency in adviser compensation is a big frustration for many investors.
Beware the DSC (Deferred Sales Charges). When an investment vehicle is touted as “no charge,” ask about DSC. Make sure you know how high the DSC is and how many years you must own the investment to avoid paying the DSC. And, get this in writing. Situations change and you may have to redeem a portion of your investment, only to find a significant DSC on the amount redeemed.
Stocks and bonds
Many investments are in the form of mutual funds with many options in terms of stocks and bonds. If you are thinking of direct investment in individual stocks do be careful. Many advisers will tout the “buy and hold” strategy for stocks as no one can time the market. But, that depends very much on age, and farmers that just sold out are not 27. It is true, in the long run the stock market index does go up — with many bumps along the road. But not all individual stocks do, and sometimes deep troughs can last for years. And those deep troughs can come about in a hurry.
Many stock market investors buy high and sell low — following the crowd. There is little chance that you will buy at the bottom of the trough, or sell at the peak. But, to make money all that is required is to sell higher than you buy. You will never lose your shirt by making money. And, you need to learn to sell from time to time.
Andy Sirski, a former Grainews editor has taught himself how to deal with the stock market. Anyone considering stocks would be well advised to consult Andy. He publishes a newsletter for a fee. I subscribed for a couple of years and found it very interesting. It included a lot of common sense. I discontinued the newsletter because I do not plan to get into direct stock trading. But I found it very interesting and informative. I prefer to be outdoors on the farm rather than at a computer. I already spend enough hours of the week staring at a screen. But, if you are so inclined do contact Andy. NOTE: I have no financial connection with Andy — our only connection is through his time as editor of “Grainews.” Andy also calls columnists and former columnists from time to time just to chat.
One trick Andy uses when unsure about a stock is to sell half. If the stock goes down you are glad you sold half. If the stock goes up you are happy you kept half. Makes a lot of sense to me.
A final point: Growth
Our world seems to exist for growth. Cities, farms, net worth, investments should all grow. But, if you are 67 years old and have a net worth from five to 15 million dollars or more, you need little growth unless you plan a lavish lifestyle. You just do not want a lot of shrinkage. Make sure your financial advisers understand that when you select investments.
It’s not all about money
The most important part of a good retirement is good health and a reason to get up in the morning. We also need the odd thing to lose a night’s sleep over. We need a little stress to keep the blood boiling, but not too much or it might boil over!
When you stop an engine that has been working hard you do not just switch it off. You let it idle for a while first. The same thing applies to a retiring farmer. Do not go from high stress farming to the couch. It will kill you.
Good luck and enjoy happy retirement days.