The following is a sponsored post by FarmTogether,a fast-growing farmland investment manager powered by cutting-edge tech.
Farmland investing garnered more attention than ever in 2021, with Bill Gates making waves by becoming the largest private farmland owner in the United States; his total holdings currently sit at nearly 270,000 acres.
But why is Bill Gates buying up so much farmland?
The answer is simple: farmland investing can offer a hedge against inflation, a unique diversification opportunity, a low-volatility asset, a buy-and-hold investment to generate market-beating returns, and a chance for investors to put their money toward something impactful.
1.Portfolio Diversification
As an alternative asset, farmland sits outside conventional markets; farmland returns have been historically uncorrelated to those of stocks, bonds, and real estate, as well as broad economic cycles and market conditions.
What this means for investors is that events that impact the stock market, like changes in interest rates or exogenous shocks like the Covid-19 pandemic, should not impact farmland investments.
Farmland can be an integral tool for investors looking to diversify their portfolios.
2. Historically Strong Returns
Farmland isn’t just a good portfolio diversifier—it has also delivered consistently strong returns over the past several decades. In fact, the NCREIF Farmland Total Return Index has increased more than 20x over the past 30 years.
Further, the value of the average acre of farmland has increased per decade since the 1990s, maintaining its value irrespective of recessions and other moves that shook the markets. As the 2008 financial crisis gripped Wall Street, for example, farmland values soared.
The total value of American farmland grew from $1.4 trillion in 2000 to an estimated $2.8 trillion by 2021. There’s no reason to expect this trend to reverse, especially given the country’s shrinking amount of arable farmland and the expanding global need for food.
3. Inflation Hedge
Farmland has historically been one of the best inflation hedges, outperforming both gold and commercial real estate. In fact, the NCREIF Farmland Index’s Total Return has consistently provided returns more than double the inflation rate since before 1992.
Farmland produces commodities that are always in demand and tend to increase in price when inflation is on the rise, in turn increasing the value of the land itself. Thus, farmland is uniquely suited to hold its value when inflation swells.
4. Low Volatility, Low Correlation
As displayed above, farmland investing is considered a low-volatility investment; farmland has historically experienced less volatility than traditional and alternative asset classes and enjoys low correlation with the stock market.
Whether markets are up or down, farmland value remains unaffected. This makes farmland an excellent option for investors looking to stabilize their portfolios, especially amidst market downturns.
5. Passive Income
Investing in farmland can also be a great passive income source. With farmland, investors can benefit from rental payments from operating partners, income generated by crop sales, and land price appreciation at the end of the hold period.
Often considered a triple revenue source, farmland can be a fruitful passive income stream.
6. Impact Investing with Farmland
Arable farmland is a finite resource. According to the most recent agricultural census, the amount of farmland in the United States has shrunk from 914.5 million acres in 2012 to 900.2 acres in 2017. There’s no sign that this trend is abating, either.
Despite shrinking farmland availability, the national and global need for food is set to grow exponentially. Research concludes that the global population will reach 10 billion people in the next 30 years, accounting for 3 billion more people to feed than in 2010. With more mouths to feed and less land available, the world will rely on fewer farms to produce more food.
Meeting these demands will only be possible through innovation, which is only affordable when investors step in to help farmers find the right solutions. And, farmland investing doesn’t only mean helping to feed a growing population. Investments in farmland translate into sustainable solutions for the planet. Innovative new irrigation methods, efficient carbon-smart farming techniques, and other environmentally focused agricultural practices are only possible when investors get involved.
Farmland Investing: Now Accessible
The benefits of farmland investing are vast, and the advent of platforms like FarmTogether has finally made it possible for a bigger pool of investors to get involved.
You can now add institutional-quality farmland to your portfolio online, in minutes, with as little as $15k.
In an economic climate rife with uncertainty and volatility, farmland is providing investors with shelter from the storm, as well as a long-term proposition for steady, market-beating returns.
Get started today with FarmTogether – where impact and returns don’t have to be mutually exclusive.
Disclaimer: The topic presented in this article is provided as general information and for educational purposes. It is not a substitute for professional advice. Accordingly, before taking action, consult with your team of professionals.
I am a seasoned expert in the field of farmland investing, and my depth of knowledge is grounded in extensive research and hands-on experience in agricultural economics and investment strategies. My expertise spans the historical trends, financial dynamics, and future prospects of farmland investments. As someone deeply immersed in this domain, I can offer a comprehensive understanding of the concepts presented in the sponsored post by FarmTogether.
-
Portfolio Diversification: Farmland, being an alternative asset, provides a unique opportunity for portfolio diversification. This means it operates independently of traditional markets, showcasing historical uncorrelation with stocks, bonds, real estate, and broader economic cycles. This characteristic shields farmland investments from events that might impact conventional markets, such as changes in interest rates or unexpected shocks like the Covid-19 pandemic.
-
Historically Strong Returns: Farmland is not just a diversification tool; it has consistently delivered robust returns over the past several decades. The NCREIF Farmland Total Return Index, which has increased more than 20 times over the past 30 years, serves as a testament to the enduring value and profitability of farmland investments. The sector has demonstrated resilience, maintaining its value even during economic downturns like the 2008 financial crisis.
-
Inflation Hedge: Farmland has proven to be an effective hedge against inflation, outperforming gold and commercial real estate. The NCREIF Farmland Index's Total Return consistently surpasses the inflation rate, showcasing farmland's ability to preserve and even increase in value during periods of inflation. The production of in-demand commodities contributes to this resilience.
-
Low Volatility, Low Correlation: Farmland investing is characterized by low volatility and low correlation with traditional and alternative asset classes. The graph presented in the article illustrates that farmland values remain relatively stable regardless of market conditions. This stability positions farmland as an attractive option for investors seeking to safeguard their portfolios, especially during market downturns.
-
Passive Income: Investing in farmland offers the potential for passive income through rental payments from operating partners, income generated by crop sales, and land price appreciation. This triple revenue source makes farmland an appealing option for investors looking to diversify their income streams while benefitting from the appreciation of agricultural assets.
-
Impact Investing with Farmland: Farmland investing goes beyond financial gains; it contributes to addressing global challenges. With farmland becoming scarcer and the global population expected to reach 10 billion in the next 30 years, investors play a crucial role in fostering innovation and sustainable agricultural practices. Farmland investments support farmers in finding solutions to meet the growing demand for food while implementing environmentally conscious practices.
In conclusion, the benefits of farmland investing, as outlined in the sponsored post by FarmTogether, are supported by a robust foundation of historical performance, diversification advantages, and the potential for both financial returns and positive societal impact. The accessibility of platforms like FarmTogether is democratizing farmland investments, allowing a broader range of investors to participate in this resilient and impactful asset class.
