The $16 Million Farmer
Hi Scott,
I recently sold my farm for $16 million. By the time I pay Capital Gains Tax (CGT), pay off my debts, and give money to my ever-expectant family, I will have about $10 million. This amount will be paid in instalments over the next four years. Right now I have $980k, of which $180k is in super. I am genuinely scared of shares as I am worried about losing all my capital. The $180k in super is only earning 2.2% and the rest is with Westpac earning 3%. I receive $2.5 million in October. Help!
Bill
G’day Bill,
Ker-bloody-ching!
I’m guessing you’re now more popular than a ewe in a ram paddock, so today I’ll play the role of the bad cop. Blame the following advice squarely on me.
First, get yourself a new accountant.
I know you’ve probably had your current accountant for years (and I’ve got nothing against them personally), but you’re now at another level. Interview at least three accountants who have had direct experience in helping farmers in your position -- those who deal exclusively with high net worth farmers. And, before you commit to any of them, ask them to talk you through the advice they’ve given other farmers. If you understand their answer, consider them. If not, thank them and keep looking. You are in control.
Second, don’t let your new accountant end up help you ‘manage your money’.
Yes, I know you’re stressed out about the responsibility of investing millions of dollars. That’s totally normal. But you’re up to it. You’re a farmer, so you must be a practical sort of bloke. Trust your gut.
Now, you’ll find there are all sorts of people who’ll come at you with all sorts of plans. They’ll try and make your investment portfolio complex: hedge funds, active alpha managers, bonds, property deals. They’re not doing it because they have a crystal ball, but to justify the fees they’ll charge.If you were sitting across from me, I’d suggest that you keep things incredibly simple.
You could keep your money in cash and live off the interest if you like. Even with rates this low, you’ll never run out of money. However, you need to understand that this is one of the riskiest things you could do. Over time, inflation will eat away your fortune.
Investor Warren Buffett is leaving his entire estate to his wife as follows: 90% in a no-brainer ultra-low-cost index fund that tracks the 500 largest companies in the US, and 10% in cash. He believes the returns from this simple strategy will beat 90% of ‘smart’ investors over the long run. You could look at doing something similar, with a mixture of Aussie and international shares. The dividends you receive will give you more income than your farm has ever given you. (Though don’t expect any advisor who gets paid on a percentage of your assets to agree with me.)
Third, don’t retire.
The two most dangerous years of your life and the year you’re born and the year you retire. If you’re a cocky through and through, you’re naturally a worker. Just because you have enough money to never work again doesn’t mean you should hang up your Akubra.
Keep working at something, even if it’s a day or two a week. Keep the grey matter turning. You’ve been blessed with a huge fortune. The real joy comes in giving some of it away, and making a difference to people. And I don’t just mean your ‘ever-expectant family’; leaving huge amounts to family members who haven’t earned it is almost always a bad idea. (Though don’t expect any of your family to agree with me.)
Good luck!
Scott
