In comparison, the stock market returned only 7.8% on average over the same time period, while gold (another alternative investment commonly used to hedge against inflation) returned ~6.0%.įarmland looks even better on a risk-adjusted basis. Between 19, farmland provided average annual returns of nearly 11%, including income and price appreciation. Not only is farmland a good investment in an inflationary environment - farmland also provides robust average annual returns.
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Farmland provides attractive returns paired with low volatility It’s also a booming time for US farmers and farmland investors. This is signaling to many investors that it’s time to start preparing their investments for an inflationary environment.
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These staples are hitting their highest price in more than six years, buoyed by strong export demand from China and dry weather. In recent weeks commodity prices have soared, including prices for corn, soybeans and wheat. An added benefit to investors is that higher crop prices increase the value of the underlying land, which leads to more robust valuations when the asset is sold. Higher crop prices translate to higher payments to investors, meaning that farmland investing is a natural hedge against inflation. In no small part, this stems from the fact that increases in crop prices drive increases in inflation, as so much of an average household’s income is spent on food.įarmland investors receive two sources of returns from their investments: passive income from periodic rental and crop payments and price appreciation when the property is sold. Historically, the value of US farmland has been about 70% correlated with CPI. Similar to gold, farmland is used by many investors as a natural hedge against inflation.
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Farmland is a natural hedge against inflation Read on to discover 5 reasons why now is the right time to consider investing in farmland. One alternative investment worth considering is US farmland. While the Fed is seeking to reassure markets that it expects inflation to peak at 2.4% and remain short-lived, many investors are asking how they can prepare their portfolios for the worst.Īmid this uncertainty, it’s worth remembering that there are many alternatives to traditional stocks and bonds. As the economy starts to open up post-Covid, financial analysts are waiting with baited breath to see whether widespread inflation materializes as many fear.