As I was preparing slides for a keynote address to a farm audience, I pondered the question in this column’s title. Farmers take on a lot of risk in their businesses and are already more than busy. In part, I hope those aspects have been addressed by the TSP, with its 46.3 per cent gain in four and a half years, and its only activity being reinvestment of dividends. The purpose of setting up this model was to demonstrate how little effort is required to achieve excellent results.

What other reasons would there be for venturing into the world of stocks?

READ MORE: How to ask for better compensation on the farm

A key non-financial reason could be that investing in stocks brings with it a learning opportunity about business and economics. This knowledge could then be applied to the business of farming.

Would a better understanding of oil markets or how commodity markets are affected by the business cycle be helpful? Could corporate profitability metrics of return on equity, return on assets and cash flow/assets be applied in evaluating the financial side of your farm operation? How does your farm compare with other capital-intensive businesses?

Stock investing provides a productive distraction from the farm. Sometimes we overfocus on a problem. When we move our mind off of it and onto something else, we often find solutions to what we were originally focused on. The French have a saying, “Changer les idées,” which literally translates to change ideas, but really means to take your mind off of something, do something different for a while.

A key reason I do my writing is to help improve financial literacy, which isn’t strong amongst Canadians. Farmers as business owners would have greater literacy than most, but there is always room for improvement. If Canadian financial literacy was stronger, I think we would elect politicians with stronger financial literacy for everyone’s benefit.

In the past, I discussed the benefits of tax-free compounding inside a tax-sheltered account, like a TFSA or RRSP. Both programs create a pool of growing assets separated from the farm. This pool can grow faster than expected. This year our TFSAs had accumulated about $13,000 in tax-free dividends, and combined with our 2023 contributions, we purchased an additional $26,000 of stocks.

Early in my career, I was focused on real estate investing, which like farming is a capital-intensive business. Even so, rather than be all in on real estate, I always maxed out our RRSP contribution and our RESP and TFSA contributions, when the programs became available. I had a hard time seeing anything do better than the tax-free compounding with stocks. Eventually, I tired of all the work real estate required and realized the ease and superb returns with stocks.

READ MORE: Interest rate herky-jerky

While the original intent of my writing efforts was to help the younger generation get off to a better financial start, over the years I have found a lot of interest amongst people close to or in retirement. Investing in stocks provides a productive pursuit, which helps keep the mind sharp with all of the related health benefits that come with an active mind. For those, like farmers, who have been very active throughout their lives, stocks as a part-time pursuit in retirement provides a “work when you want” opportunity. With my retirement from the seed business, I’m not sure how I would fill every day if I didn’t have this pursuit.

I realize not everyone finds the world of stock investing as fascinating as I do. When I began, I wasn’t nearly as intrigued as I am now. I started solely for the purpose of deriving better returns than interest-bearing investments. Only in time did I grow more fascinated by the endless learning opportunities, and how all of the puzzle pieces of our modern economy fit together.

The underlying goal is to make money and grow your asset base. On a nominal basis $1.00 invested in U.S. stocks in 1900 compounded at a rate of 9.5 per cent and was worth $70,211 in 2022. A dollar in bonds compounded at 4.7 per cent to become $269 and a dollar in cash (T-bills) compounded at 3.4 per cent, becoming $60. Naturally we should subtract out inflation, which averaged 2.9 per cent. On a real return basis, a dollar in stocks grew to $2,024, compared with bonds at $7.80 and cash at $1.70 (this information can be found in the Credit Suisse Global Yearbook). While 122 years seems like a long time, it is only twice our investing lifespan, if we are active from the age of 20 until 80.

The post Why would a farmer be interested in stocks? appeared first on Grainews.

Asking for higher compensation can be difficult, and arguments arise when what you think you need is perceived by your employer, the farm parents, as a want.

Talking about money doesn’t have to be stressful when you come prepared with data or a “reality check” of what you need. Be clear about what you see as fair compensation.

One of the best ways to reduce stress about compensation from the farm is to figure out what you need to cover all personal living expenses for your family.

READ MORE: Froese: Too much farm drama?

I can imagine people groaning as they read this, but here are some useful strategies to help young farm families figure this out. These tips also apply to founders who need a clear understanding of their income stream needs as they step back without stepping away on the farm.

I recently spoke to a group of dairy farmers and suggested a family of four needs about $84,000 per year to cover living expenses. On our farm, Wes and I typically spend $75,000 annually. This doesn’t include charitable contributions or investments, and we don’t have a house mortgage.

Everyone’s number for annual living expenses is their number, but you need data to determine required cash flow and expectations for family living. Here’s how to get started.

Get data. Review the previous year’s bank and credit card statements to see what you spent for family living. Track what you are now spending, using receipts and bank records. Find an easy way to keep track of financial information so you get good data. Find out what other young farmers make for income in comparable scenarios.

Try using the AGvisorPro app to connect with farmers and consultants who are willing to share information. Try other resources, like Farm Credit Canada’s cost of living calculator. Iowa State University Extension also has a useful guide, “Benchmarking Family Living Expenses in Agriculture,” which you can find within its website.

Use Dick Wittman’s compensation worksheet. As I wrote in my April 18 column, Dick Wittman has a tool called the Performance Evaluation Worksheet that can help you nail down wages or salary. It can also help calculate farm perks, such as housing, utilities, cell phone, internet, pickup truck, fuel, meals, garden produce, etc. Many families forget all the items the farm is paying for. Expenses like these can add up to $14,000 or more.

READ MORE: Help! My parents have loads of debt we don’t want!

Consider your goals to achieve equity in the farm business. What debt are you willing to take on to gain ownership of land, equipment or livestock? If the farm wages/salary you’re getting is just enough to live on, you are likely not getting enough compensation to have disposable income for farm debt payments. Before computer spreadsheets, we kept track of debt payments in a yellow scribbler and we would celebrate paying off farm loans. What are your timelines for moving from being an employee of the farm to a partial owner?

Talk about money with your spouse. When you and your spouse have the same goal of gaining growth opportunities in the farm business, you are both pulling in the same direction. If you fight about what the family needs versus what the farm needs, you need to seek deeper understanding of what can wait and what needs to happen now to meet the family’s needs. What investments today will make money? Which debt is good debt? Does everyone understand the concepts of “save” or “wait?”

Discuss what “sacrifice” means to your family and to the larger farm team. Author Lance Woodbury talks about sacrifice as a gift, necessity or crutch in The Double Edge Sword of Sacrifice. Compensation may be kept low for young farmers as a crutch when the real issue is lack of business financial performance or too many family members working in business.

In other cases, Woodbury says, “sacrifice is used as a way for parents to avoid hard choices about succession planning and the process of letting go.”

I recall hearing founders say they want the next generation to suffer as they did. Yikes! Where is it written that young farm families need to suffer economic hardship to appreciate the opportunity to farm?

Arrange a farm team meeting to discuss current compensation and what needs to change. Be clear about what level of wages or salary you need for your family’s well-being. If you need a human resources specialist to help with employee contracts, reach out to Lindsay Seafoot at lyndsay@curbridgeco.com. She works with ag families from Wawanesa, Man.

Celebrate how you manage your income well. Let your spouse and your farm team know you are grateful for what you can accomplish together with the resources provided.

Talk with your spouse if you have concerns about overspending. Discuss what money means to you. Examine what you truly need for both of you to accomplish financial goals. Listen to the “Moolala: Money Made Simple with Bruce Sellery” podcast. Sellery authored Moolala: Why Smart People Do Dumb Things with Their Money.

Work to have compensation matched to the roles and skills you provide on the farm. Just because two siblings work as employees on the farm, it does not mean their different skills — for example, farm labour versus farm manager — deserve the same income. I’ve seen disputes arise over this when the farm owner is conflict averse and not fair with compensation for different skill sets. This kind of situation may need mediation and facilitation with a coach.

Reach out to Elaine and I will send you a folder with Wittman’s compensation tool along with pdfs of Woodbury’s The Double Edge Sword of Sacrifice and Iowa State’s “Benchmarking Family Living Expenses in Agriculture.”

Every farm family, old and young, needs enough financial resources to live well and grow the business. Talking about money and understanding the money scripts in your family will create more harmony. Being clear is kind.

The post How to ask for better compensation on the farm appeared first on Grainews.