How to invest money from the sale of a ranch – part one

By Chris Nolt

                  This article is the first of a three-part series on how to invest proceeds from the sale of a ranch.

                  The proceeds from the sale of a ranch can represent a culmination of many years, and often, many generations of hard work.  Considering this, it is crucial to engage the services of financial professionals to help those selling the ranch to reduce taxes and invest the sale proceeds wisely.

                  While this article is not about strategies for saving taxes on the sale of a farm or ranch, it is important to note the Internal Revenue Code (IRC) Section 1031 Exchange and the IRC Section 664 Charitable Remainder Trust are two financial tools which can be used to reduce taxes on the sale of farm and ranch property.  By using these tools, a farm or ranch owner will have more money to invest for their retirement.

                  While it is not hard to make personal investment decisions, I find most who do invest on their own make costly mistakes.  These mistakes often cost them far more than the money they are trying to save by investing on their own.  

                  The right financial advisor should be able to deliver value over and above their fee for managing money.  Besides helping create and maintain a properly diversified portfolio, minimizing taxes and assisting with ongoing retirement and estate planning, a good advisor will help to avoid making costly emotional mistakes with an individual’s money. 

                  People are often their own worst enemy when it comes to investing.  Fear, greed and other emotions cause them to buy high and sell low. This is illustrated in an annual study conducted by Dalbar, a leading financial services market research firm which investigates how mutual fund investors’ behavior affects the returns they actually earn.  

                  The results of their annual studies have consistently shown the average investor who invests on their own earns less, and in many cases, much less than the overall market indices. 

                  Oftentimes, farm and ranch owners have little experience investing in anything besides the assets comprising their farm or ranch.  When faced with investing millions of dollars from the sale of their property, many don’t know where to start or who to trust.  

                  Most financial advisors are considered broker-dealers. A broker is defined as any person engaged in the business of facilitating transactions in securities for the account of others. Brokers are paid commissions tied to investments they select for their clients.            Brokers operate under the suitability standard. This means the broker must believe their recommendations are suitable for their clients. 

                  Because a broker-dealer is not required to meet fiduciary standards, they can recommend investments, which pay them a bigger commission, even if there is a better product for their customer’s situation.  They may also place excessive trades in an account, resulting in higher transaction costs and tax consequences.

                  A smaller percentage of financial advisory firms are classified as Registered Investment Advisors (RIA).  A RIA is someone who has completed the qualifications to be registered with the U.S. Securities and Exchange Commission (SEC) and with applicable state agencies. 

                  RIAs follow a higher standard called the fiduciary standard. This means they have a fiduciary duty to their clients. As a fiduciary, they are required by law to always act in the client’s best interests. 

                  A fee-only RIA is not compensated by investment and insurance companies, rather, they are compensated by the advisory fees they charge their clients.  This eliminates conflicts of interest and better aligns the interests of the advisor with the client.  RIAs must disclose any conflicts of interest and are prohibited from placing trades which will result in more revenue for them or their firm.

                  Chris Nolt is an independent registered investment advisor and the owner of Solid Rock Wealth Management, Inc. and Solid Rock Realty Advisors, LLC, sister companies dedicated to working with families around the country who are selling a farm or ranch and transitioning into retirement.  To order a copy of Chris’s new book Financial Strategies for Selling a Farm or Ranch, visit amazon.com or call Chris at 800-517-1031. For more information, visit solidrockproperty.com and solidrockwealth.com.