National Manager of Agribusiness Financial Planners at the National Australia Bank (NAB), Chris Fry, says farmers have traditionally invested in extra land or machinery to increase the productivity and profitability of their operations.

However, he has told growers at the Grains Research and Development Corporation (GRDC) Updates in Goondiwindi and Quirindi this week that there are several good reasons to consider other options.

“Diversification through off-farm investment can protect against the volatility of agriculture,” Mr Fry said.

“Australian shares, cash, overseas shares and listed property are each asset classes with differing risk and return characteristics. In many cases, one will perform strongly while another is performing poorly.

“Historically, other asset classes have performed strongly compared to farm returns, which would suggest some benefit for most farmers to have a greater proportion of assets off-farm.

“However, it is vital for farmers to know the returns on the assets of their farm business so they can compare them with off-farm investment classes.

“That is the only way they can make an informed decision on whether, for instance, to buy additional land or to invest in a managed share fund.”

Mr Fry said it is important to seek professional advice, particularly with the current volatility in some markets, and to work out a plan that takes into account individual objectives and timeframes.

And not all decisions have to be based purely on maximising investment returns, as off-farm investment can also play an important role in assisting in farm succession planning.

“It’s important to ensure Mum and Dad can actually retire, and that they have enough income to do so comfortably without putting strain on the farm’s cashflow,” Mr Fry said.

“In some cases, one child will stay to run the farm and end up taking on a large debt burden to pay off siblings.

"Off-farm investments can make it easier to split assets with children not interested in returning to the farm.

“However, it’s also important to take into account the views of everyone in the family.

"This might mean making investment decisions which keep family harmony and take into account retirement plans.

“Again, it’s important to know the relative return on investments, so you can weigh up the costs of the alternative and make an informed decision.”