Nothing seemed to be stopping the stock market lately. Despite the increased volatility related to COVID-19, stocks have more than rebounded from last year’s lows. The S&P 500 is up over 60% year over year and has increased by 22% since January 3, 2020.
However, despite the sky-high stock market returns of the past few months, many experts are far more pessimistic about the future market.
More than ever, investors are looking for a unique asset to protect their portfolio. For some, this serves as a unique hedge against market volatility. For others, it’s about finding an asset that offers significant value – a way to enter a new market before it becomes a household name.
Farmland is one of those top investment opportunities that you may not have heard of. Farmland investments enjoy constant returns, high stability, and serve as a diversification option with low market correlation.
… However, that’s not all that farmland investments can do for your portfolio. Here’s what you need to know about investing in farmland if you’re a beginner.
What investors need to know about farmland investing
Historically, the 60/40 portfolio has attracted many investors to diversify while delivering robust annual returns. However, this strategy no longer delivers the returns that most investors expect for many reasons.
First, the inflation projections are still below historical inflation. Inflation is projected to average 2% over the next 10 years, compared to an average of 3.9% between 1970 and 2020. Low inflation correlates with lower bond yields and lower nominal stock returns. Second, the lows of interest rates should keep bond yields low for the foreseeable future. After all, share valuations are currently at historic highs. If these expectations are not achieved through a supplementary increase in earnings, this will lead to a decline in the expected returns in the long term.
Farmland is an alternative asset that, like several other alternatives, offers a unique investment opportunity that is outside of the typical mix of stocks, bonds, and mutual funds. In many ways, farmland shares similarities with commodities and real estate in a portfolio. Each is designed to deliver stable long-term results that can weather market turmoil and inflation.
This is where the bigger similarities end. Farmland puts your investing dollars further than gold, which experts say will cost an average of $ 1,974 an ounce in 2021. Commercial and residential real estate could be on the verge of a bubble, according to some analysts. Farmland, on the other hand, is better value for money than gold and has performed well even when other property assets are depreciating in value.
Why farmland investments have not always been accessible to investors
If you’re wondering why you may never have heard of the benefits of investing in farmland, there are a few reasons why you should. For many years, investing in farmland was inaccessible to individual investors. Buying a farm outright is out of reach for many, and there has been a lack of tools that would enable the purchase of farmland shares.
The farmland investment space was dominated by large institutional investors who had the resources and connections to make large investments that individual investors could not. The popularization of equity ownership, particularly through digitally controlled investment platforms, has since made it much easier for private investors to seek out farmland investments and add them to their portfolios.
The benefits of investing in farmland
We have just skimmed the surface of what farmland investments offer investors. Better value than raw materials and a more stable investment than real estate are just two of the many benefits of investing in farmland. Here are some of the greatest benefits of investing in farmland.
A superior hedge against inflation
Current market conditions are characterized by inflation. Interest rates are near zero and the Federal Reserve has pumped money into the US economy as part of its economic response to COVID-19. Combine these two phenomena with lingering supply chain problems that can drive up consumer goods prices and you have a recipe for inflation that may last for a long time.
By investing in farmland, you can hedge against inflation that affects your returns. Commodity prices tend to rise in periods of inflation, which means that commodity-producing farms achieve harvests that achieve higher market prices. This in turn increases the value of your investment.
Farmland has also weathered several economic crises, including a period of hyperinflation that began in the 1970s under the Nixon administration. Other economic crises such as the 1987 stock market crash, the 2008 Great Recession, and even the current period of economic instability due to COVID-19 have not affected the growth of farmland value.
Low market correlation
By investing in farmland, you are creating a hedge against market downturns with little correlation with stock market movements. Low correlation means that your farmland investments have not historically moved in the same direction as the markets. When you combine this with the decades-long track record of growing farmland value, you buffer your stocks against future market fluctuations and unpredictability.
Investors looking to offset some of their exposure to the volatility of conventional investments should look for investments with low volatility. Investments with low or even negative correlation are a must. Farmland offers just that as it has a negative correlation with the markets. Put simply, farmland moves in the opposite direction as traditional investments, making it a great addition to your portfolio when markets are shaky.
Not only does farmland have a negative correlation with markets, but it also has a track record of low volatility as an asset class. The average price for one hectare of arable land has increased annually on average since the early 1990s. The same does not apply to stocks, bonds and mutual funds, which fluctuated significantly over the same period.
The markets are more volatile than ever. Investors looking to get off the roller coaster can invest in farmland to get exposure to an asset with a more even keel. This can be a welcome addition to a portfolio that is otherwise exposed to market fluctuations. Farmland investments may not result in double-digit growth in a matter of months, as some stocks do, but neither is it likely to depreciate as quickly.
Sustainability-oriented asset class
Last but not least, farmland plays an important role in a sustainable portfolio. Investing in farmland through the right platforms can mean giving farmers access to the capital they need to implement greener technologies that can otherwise be prohibitively expensive. For example, the capital required for organic farming can be a challenge for many farms that operate with low profit margins and low liquidity reserves. Access to outside investment can help these farms expand their environmental practices without putting themselves in a precarious financial position.
Your investment can even help farmers use unused land for green energy: Many farms across the country are converting part of their acreage into wind or solar parks, thus helping to power a new generation of sustainable energy sources. This means your investing dollars are doing more than generating a return – they are also helping to create a more sustainable future.
Why your portfolio needs farmland investments
There are a plethora of benefits investors can enjoy when adding farmland to their portfolio. Farmland investments provide a compelling hedge against inflation and market volatility that is in greater demand than ever due to more dramatic market fluctuations. Additionally, investing in farmland is a sustainable choice that will help drive innovation for family farms across the country. The more you look at farmland investment opportunities, the more there is to like.
FarmTogether: The best way to invest in farmland
FarmTogether is an online marketplace that makes it easy to get started investing in farmland. FarmTogether is relevant to competitors and has many advantages that we will discuss below.
Experienced investment team
The FarmTogether team has a combined experience of more than 70 years in farmland investments, agriculture and real estate in the US and worldwide and selects only properties they would invest in themselves. With their proprietary technology and decades of experience, they sift through hundreds of opportunities to choose only the best.
Carefully curated farmland
The FarmTogether investment process begins with a global macro view that takes into account water availability, climate change, structural regional trends, regulatory landscapes and long-term trends to improve agricultural yields. Next, they integrate 87 data sets from public, private, and proprietary data sources to perform property analysis. Finally, they will look at the due diligence requirements relevant to the particular farm, including soil, water, capital improvements, titles, local legislation, depth of the supporting agricultural ecosystem, cost of inputs, wages for farm workers, and more.
After evaluating thousands of properties, the team selects only a few (3% to be precise) to recommend to its clients.
When you invest in FarmTogether, you are buying shares in an LLC. You become a partial owner of the arable land and are entitled to return it from its operation. For a low minimum of $ 15,000, accredited investors have access to top properties targeting a 7-13% return on cash yields of 3 to 9% – all minus fees.
Cash payments from operating income are proportional to your ownership of the LLC and are made quarterly or annually, depending on the crop sales plan or lease for that year. At the end of the intended holding period of a property, investors receive their share of the capital gains from the sale of their farm.
The all-in-one platform enables you to identify new opportunities from a wide variety of operations across the country, review due diligence materials, financial data, leases and other helpful information, and monitor your ongoing investments.
FarmTogether also has a robust learning center where investors and prospects can find helpful blogs, infographics, white papers, podcasts and more.
You can always find out more about FarmTogether in the FAQs or sign up for an account today to be combined with the team of investment experts.
The best apps to save real money
We talk a lot on the phone, don’t we? Wouldn’t it make sense to save money with the best money-saving apps?