Farmland vs. Traditional Investments

While many investors are familiar with how the stock market works, farmland investing remains less understood. If you haven’t encountered this opportunity before, or if you’re new to alternative investments, you might not be familiar with how farmland investing operates. The good news is that the principles of farmland investing aren’t drastically different from those of stock market investing. If you already know how to manage your portfolio and track financial performance, you're well on your way to understanding farmland investments.

That being said, there are important distinctions between these asset classes, including their historical performance and unique characteristics. Here’s what you need to know when comparing farmland investing with other options like stocks, bonds, mutual funds, and ETFs.

Farmland Investing vs. Stocks

Farmland and stocks serve different purposes within a portfolio. Stocks can provide either long-term growth or short-term returns, depending on how they are managed. However, stocks are often tied to market performance, meaning their value can fluctuate significantly. For instance, in early 2020, the S&P 500 index dropped 34% within 33 days before rebounding later in the year. This volatility underscores the uncertainty of the stock market.

Farmland investing, on the other hand, tends to be less volatile and is less impacted by broader market swings. Farms generate value from the production of agricultural goods, which are often more stable and even benefit from inflationary periods. As crop prices rise during inflation, farms—and by extension, investors—can benefit from increased revenue.

Farmland Investing vs. Bonds

Both farmland and bonds are long-term investments, but they generate returns in different ways. Bonds provide a fixed return, with yields based on the issuer and the term length. Current government bond yields range from .06% to 1.62%, offering predictable but modest returns.

Farmland, particularly through fixed-income investments like lease agreements, can offer higher, more stable yields. In this model, farmland is leased to farmers, providing investors with a consistent income stream similar to bond interest payments. Depending on the lease terms and type of land, farmland investments can generate cash yields ranging from 3% to 9%. Additionally, farmland values tend to appreciate over time, providing potential capital gains on top of the fixed income, making it a compelling alternative to bonds for long-term investors seeking higher yields and inflation protection.

Farmland Investing vs. Mutual Funds and ETFs

Mutual funds and ETFs are popular choices for investors seeking diversified portfolios with moderate growth. These funds are managed either actively or passively and provide a lower-volatility alternative to direct stock market exposure. However, because they are tied to the performance of the stock market, they are still subject to market fluctuations.

Farmland, while also offering stability, provides an additional layer of protection against market volatility. Because farmland is an alternative asset class, it is typically less correlated with the broader market. Additionally, farmland tends to perform well during inflation, as the value of agricultural products increases, providing a natural hedge that mutual funds and ETFs may not offer.

Farmland Investing: Key Benefits

There are several advantages that farmland investments have over stock market investments. As an alternative asset, farmland investing gives you access to an opportunity to make a return that’s not tied to market performance. This can be a major benefit to investors that might be over-reliant on Wall Street gains to propel their portfolios. With economic jitters abound, there may not be a better time to seek shelter through an asset class that’s outside a shaky market.

With farmland investing, you’ll also avail yourself to an asset class that has a track record of maintaining value irrespective of the ups and downs of the economy. Plus, agricultural goods and commodities tend to increase in value during inflationary periods, which bodes well for farmland investors that are entitled to a percentage of the revenue from harvest (which FarmTogether’s investments provide).

Farmland investing offers a remarkable opportunity to diversify your holdings. You’ll get the perks of real estate investing, the security and confidence of gold investing, and a vital piece of your recession and inflation-proofing financial strategy.

Considerations of Farmland Investing

Although farmland investing is typically a strong option for most investors, there are a few considerations to factor in if they apply to you. First, you’ll have to make sure you have at least $15,000 to invest. FarmTogether is only open to accredited investors, and you’ll have to be able to put up at least this much to get started with your first investment.

Next, you’ll have to think of timing and how it relates to your portfolio. If your investing strategy relies upon a quick return on what you put in, farmland investing might not be a fit. Farmland investments usually require several years before investors can reap the full financial rewards of what they put in. So if you’re looking to make money fast, or do not have 5 or 10 years to drop into an investment, farmland investing may not be a great fit.

How to Know if Farmland Investing is Right for You

Every investment offers a unique proposition based on your portfolio goals. Farmland investing is ideal for those seeking stability, inflation protection, and long-term growth. While it may not provide quick returns, it can serve as a strong hedge against market volatility and inflation.

For investors looking to diversify beyond traditional asset classes, farmland offers an attractive opportunity to add a stable, recession-proof, and inflation-resistant asset to their portfolio.