Buying a Cow as an Investment
Brendan Dale is the author of the personal finance site Take Charge of Your Money. Today he shares the story behind his most unique investment: a cow.
I can’t actually remember how I first heard about Livestock Wealth but I remember really loving the concept. Investing in livestock is an age old practice in Africa and something which is most often done in a communal way.
It’s really expensive to own and run a farm and herd, so coming to some sort of agreement with friends, family or neighbors is quite a common practice. In fact whole villages can farm communally. Sharing the expenses as well as the fortunes is a great way to limit risk as well as to make it affordable for people to start investing.
I’ve heard of farming communities before that allow outsiders to buy a cow which they look after in return for the first calf (or some other payment form). I have often been tempted to buy-in but have been nervous of the accountability of the farmers as well as how events such as theft or death of the cow would be dealt with.
These communal farming schemes have always seemed a bit risky and seem to work on the “handshake-agreement” which is strange when you don’t have any personal relationship with the parties involved.
Livestock Wealth is very different though! It is the most structured, tech-savvy and award-winning crowdfunding farms that I’ve heard of! That sounds like a mouthful but after reading everything on their website, calling their office and then discussing this with two trusted friends I decided to buy a cow!
I’m generally risk-adverse but feel that there’s no more risk in this than most other investments. I also like this as it helps in diversifying my investments, support local entrepreneurs, and it is so far proving to be a great investment.
Who would have thought that owning a cow could turn out to be so easy!
How it works
I’ll give a summarized explanation of how it works along with my actual investment figures. You can obviously go through their website for more info.
The basic idea is that you buy a cow and pay annual fees for the farming expenses as well as annual insurance which covers the loss of the cow in various events. Your cow then happily goes about life and should each year produce a calf.
Not all cows produce a calf though and sometimes calves may die, so to average things out all calves on your farm are sold and the dividends split between all owners.
So really, in simple terms, you buy a cow and pay for someone to look after it. And when it produces a calf you get the income from the sale of it. When your cow grows old or dies, it gets replaced with a new one.
Your investment is the actual cow which is an asset as you can resell it at any time for a market-related price and the value of a cow increases each year as the cost of meat increases. And you receive a payout each year from the sale of your calf.
Something which makes this quite different form a usual investment is that you need to pay fees twice a year and receive a payout once a year. Your money doesn’t simply grow each month but rather there’s an outlay of money and then income and then more expenses.
It can feel as though you’re not making any money but to avoid this feeling and to keep my cash flow stable I keep the payout money aside in a separate savings pocket and use it to fund the upcoming expenses.
My cow investment
Let’s look at my actual figures. Remember that within a 12-month period you will pay insurance fees as well as farming fees and you will have one income from the proceeds of the auction of calves.
If you look below, I bought my cow in August 2016 for R11,675 and the value of the cow in December 2017 was R13,250. I’ve also included the farming fees which will be payable in August and I’ve assumed an 8% increase from last year. Of course I don’t actually know the true cost right now but I need to consider this expense to get a proper overview of my investment.
Over the past two years the growth in my investment is 15% per year which really isn’t bad! I have done this calculation over a complete 2 year period but there are two unknown values which will affect the final figure.
Firstly, the value of my cow is what was given to me in December 2017 and my calculation is actually based on August 2018 figures. The value of my cow is most likely higher than shown. Secondly, as stated before, the farming fees due in August are not exactly known.
I could possibly earn more if I invest in shares or unit trusts, but I’m pretty happy having this as part of my portfolio. It’s a very novel and unique investment which provides jobs and much needed agricultural support and in the country. It’s a feel-good investment to me where real people are benefiting as opposed to large corporations. And, I’m quite happy with a 15% growth so far!
The Current Model
For anyone interested in making this type of investment, there are currently two models available:
1. Pregnant Cow – 12 Month Option
“Invest in a carefully managed three-month pregnant cow for a period of 12 months. We maintain the cow at no additional cost to you. Should something happen to your cow we replace it. Earn a return between 10 and 14% per annum on your investment. You can re-invest on the same cow or a different one.”
2. Free Range Beef – 6 Month Option
“Invest in a 12 to 18 month old calf that is raised to produce premium free-range beef for a period of 6 months. We maintain the cow and calf at no extra cost to you until it is ready to sell in six months. Should something happen to your cow we replace it. Earn a return between 10% and 14% per annum on your investment. You can re-invest in another calf and repeat.”
Happy cow farming!
Republished with the permission of Take Charge of Your Money.