Don’t look now, but inflation has gotten so bad it may be time to buy the farm. That's financially, not colloquially, speaking of course.
Investors tend to look for so-called "real assets” during periods of rising inflation. The logic behind this strategy is that physical assets such as real estate, natural resources and infrastructure will appreciate — or at least better maintain their value — compared to traditional, and far less tangible, stocks and bonds, which tend to struggle when prices and interest rates rise.
One often overlooked real asset is farmland, primarily because most investors have little to no clue about how to access it. Soybeans, wheat and other farm commodities have long been available to trade as ETFs or on futures markets. Purchasing the soil from which they are reaped, however, has sown confusion among the investing class.
InvestmentNews sat down with Carter Malloy, CEO of AcreTrader, to hear about the benefits of buying and selling farmland. AcreTrader is an online platform that allows real estate investors to buy shares of farmland and earn passive income.
InvestmentNews: How easy or hard is it to invest in farmland through a self-directed IRA? What hoops need to be jumped through?
Carter Malloy: Investing in farmland via an SDIRA is easy to do and quick to set up, allowing you to move money from an existing IRA/401(k) and make your first investment in as little as a week. The first step is finding an SDIRA company, like Alto for example, and creating an account. Once the account has been opened, you will navigate to the AcreTrader platform, where you can create a Self-Directed IRA investment account/profile, as our platform allows you to keep all accounts under a single login.
IN: What kind of returns should investors expect?
CM: Farmland has shown total annual returns of around 11% since 1990, according to data from the National Council of Real Estate Investment Fiduciaries. These returns are generated from both appreciation in land values and annual income from rent or the operations of the farm.
IN: What kind of correlation does farmland have to the equity market? Or any other market?
CM: Historically, farmland has had little to no correlation with assets in publicly traded markets, whether that be stocks, bonds, REITs, etc. However, there has been a positive correlation to inflation, which is driving growing interest in farmland as the U.S. faces inflation rates not seen in decades.
IN: Why is this a smart investment for retirees?
CM: Whether farmland is a smart addition to any portfolio is up to the investor and what is appropriate to them. Farmland investments can play an important role in diversifying an investor’s portfolio, given its lack of correlation with other asset classes and its potential for inflation hedging, capital appreciation and cash yield.
IN: Is farmland a good ESG play?
CM: Ultimately, an investment in farmland is an investment in keeping arable land in use and productive to feed an ever-growing population. We encourage the farmers with whom we work to care for the soil by utilizing practices like crop rotation and cover crops to preserve fertility and quantity of quality topsoil.
We also enroll our acres with Leading Harvest, a nonprofit that ensures land is being managed sustainably through science-based, third-party audited standards. Our membership in Leading Harvest helps keep our sustainability efforts measurable and our properties compliant with their standards, moving us toward more sustainable outcomes for farmers, investors, and the land.
Additionally, while only about 1% of U.S. farmland is organic, over 10% of the offerings that we have funded on the platform meet the criteria to be listed as organic and/or transitioning to organic.
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