Farming: How about this for a high risk investment?

Put yourself in my shoes. I’m a financial adviser and I have a client who comes to me and says that they want to put all their life, money and time into developing an investment which they’re sure will grow over the long term and will give them more than enough money to retire on. Not only that but they’re so confident that they’re going to borrow millions to invest. If my client is right he’ll have plenty of money when he retires – probably much more than he needs. But if he’s wrong then he’ll go bust and the bank will take all his money. What should I do? What would you do if you were me?

Do I remind myself of that old expression ‘The client is always right”. Or should I wrestle him away from the door and tell him not to be daft? Talk about risk, talk about putting all one’s eggs into one basket?  Plead with him to diversify? He’ll ask if the returns from diversified investment will be as good as his choice of one single investment and the answer is probably No but it will be much, much, much safer.

The investment of course is in farming. No one chooses farming as a career with investment returns as their main objective. Farming is chosen because it’s a way of life and because of interest. Other people choose computers, or law or teaching but in hardly any other career is one’s financial future completely tied into what you do every day. Everyone (except farmers) invests ‘off-farm’ into KiwiSaver, investment properties or their home – the values of these are unrelated to their jobs. You might be the best farmer in the country but if your retirement coincides with a downturn in the farming economic cycle – you’re stuffed.

The way to protect yourself is to get your capital up to sensible levels and then diversify by gradually investing off-farm. Boring isn’t it? But that’s my job sometimes – to be boring.