With Joe Biden officially sworn in as the 46th President of the United States, and the 2020 U.S. election now in the rear-view mirror, all eyes are turning toward the first 100 days of the incoming Biden administration. This is especially true for investors who might be looking for signals that forecast the new administration’s policies on Wall Street, taxes, and other financial considerations that can impact their portfolios.
With the three branches of government under Democratic control for the first time since 2011, investors could see any number of initiatives that could impact their holdings. The Biden administration’s efforts to reform elements of the tax code and market regulation may have a possibility of coming to pass, and the likelihood of a prolonged economic recovery due to COVID-19 both make it essential that investors diversify their holdings.
There’s a certain amount of predictability in terms of how Wall Street responds to elections—even when a sitting president loses re-election or the White House changes hands from one party to another. Every reaction isn’t the same in terms of the size of market movement, but each election tends to create at least a modest bump in value. And in a new president’s first term, markets tend to see a 10 percent lift in value, historically speaking.
These trends are as true for Democratic wins as they are for Republican victories, meaning that any narratives about doomsday on Wall Street as Biden assumes the presidency may be misguided.
That said, there are mitigating circumstances this year that may yield a much more muted response to the new administration. Chief among them is the prolonged COVID-19 pandemic, rising death tolls, and the slow rollout of vaccination efforts across the country.
The pandemic has created unprecedented uncertainty across the global economy. The Biden administration faces multifold challenges: keeping the population safe, helping ailing businesses affected by public health measures, sustained unemployment, and congressional discord about future stimulus payments to individuals. This could put aspirations for financial reform on the back-burner, even if Biden’s centrist policies made major overhauls unlikely from the beginning. Still, the challenges ahead are staggering, and could affect portfolios for at least the rest of 2021.
Given the one-two punch of a global health and economic crisis, it could be smart for investors to approach their portfolio allocations carefully. Withdrawing from the market entirely is commonly unadvisable—exiting from investments entirely means potentially locking in losses and missing opportunities to invest on the cheap. Rather, it’s often better, depending on one’s individual investment goals, for people to spread their investments across a wider variety of assets—especially those outside the stock market.
By moving funds away from the markets, investors can diversify their portfolio in ways that can hedge against falling stock value and volatility. Alternative investments in real estate, commodities, farmland investing, or other opportunities can hedge against disruptions to the market in several ways. Better still, some alternatives (like farmland investing) could even rise in value during the volatile months to come.
As vital as it is to diversify your portfolio, the way in which you allocate funds is even more important. Merely moving positions in stocks, bonds, and funds can only give you so much protection against a wide-scale market downturn. Worse yet, keeping the bulk of your portfolio in the market can also lead to you missing out on the opportunity to make a return that alternative investments could otherwise provide.
This is where alternative investments shine during volatile periods.
Whether you’re new to alternatives or are looking for new opportunities post-election, there are a multitude of options to consider. Here are some of the best alternative assets for diversifying your portfolio as a new administration takes over.
Gold and silver may be the best-known commodity for your average investor, particularly for the amount of attention they garner during periods of economic uncertainty. There’s a good reason for their popularity as well: both gold and silver have a track record of maintaining value, or even growing in value during periods of inflation or during recessions.
During the 2008 economic downturn, gold prices sat at just over $870 an ounce when the market bottomed out. By August 2011, gold reached a high of $1,917.90—even as the economic recovery was well underway. Since then, gold prices peaked in August 2020 at $2074.88 per ounce, demonstrating that this investment does more than just provide security during down markets.
That said, they’re far from the only options for diversification in the world of commodities. Other options include agriculture and energy, which both tend to rise in value when inflation makes goods more expensive. Energy investments may not enjoy the stable demand they’ve typically enjoyed during volatile periods due in large part to the uniqueness of the COVID-19 pandemic, such as fewer commuters on the road (and less demand for oil).
Commodities are an alluring option for many investors, but they’re far from the only game in town. Other alternatives, such as farmland investing, can provide a value (and more upside) than most commodities can. For example, an ounce of gold priced at $1,900 means you’ll have to put significant capital into one alternative investment. This doesn’t necessarily help diversify your portfolio.
Farmland investing, on the other hand, can cost much less and provide you with a greater opportunity to diversify. With FarmTogether, you can get started with your first investment with as little as $10,000. You’ll also get access to a variety of investment opportunities spanning several different crops, return rates, and target hold dates. This alternative asset class makes it easy to diversify, and with more customization options to fit your needs.
There are two ways to pursue real estate investments as a means for portfolio diversification. The first and most straightforward is the outright purchase of real estate—be it commercial, residential, or otherwise. By incorporating real estate into your portfolio, you can benefit from relative stability depending on the market and location of your investment. You can also avoid the ups and downs of the market in the process.
Real estate investment trusts offer another way to enter the real estate market without the need to make a direct investment in a specific piece of property. With a REIT, you can enjoy fractional shares of a property that’s managed by the trust itself. This means you can allocate what you want and enjoy a piece of the profits when the investment provides one. In this way, REITs provide the best of both worlds with real estate investing: distance from market volatility and less hands-on work than traditional property ownership.
Private equity can also be an alluring option for hedging against uncertain markets. By moving money into a hedge fund or equity fund, you can take advantage of investment opportunities not available to individual investors. This may also create more upside than a diversified portfolio that’s still tied closely to market performance. Private equity tends to hold up well during a multitude of economic conditions, meaning that it might have a role to play in your portfolio for the years to come. In fact, these funds enjoy a 15 percent return as an industry average, which far exceeds the typical 4 percent return garnered by the Dow Jones Industrial Average.
There are a few downsides to private equity investments, however. Cost may be a consideration depending on the amount of money at your disposal for investing. The average minimum investment in private equity can range from $250,000 to $25 million, which is a considerable ask as far as a portfolio diversification play is concerned. Plus, most private equity funds require investors to keep their investment in the fund for at least 10 years, which may be a prohibitively long amount of time for some.
There are a variety of ways in which an investor can diversify their portfolio as a new administration takes over. Some are more drastic than others, be it due to the high cost of entry or the period of time required to stay in the investment. Others may offer a hedge against the markets, but without significant upside compared to other options. The multitude of options, particularly within the world of alternative investments, can overwhelm even the most sophisticated investor.
There’s one way for investors to get the diversification they need without having to make major trade-offs. Farmland investing combines the best of commodities, real estate, and even private equity investments. With FarmTogether, you can avail yourself to historically stable real estate value, a portion of profits from crop sales, and the investment savvy of a seasoned team of experts to guide you.
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.