When it comes to investing, the stock market often takes center stage in people's minds. This with a good reason. Stocks have been the obvious investment for many, while farmland has historically been less known as investment object. The historical difficulty of acquiring farmland compared to buying shares from a stockbroker has contributed to this trend. However, the landscape of investment is evolving, and farmland is emerging as a realistic option for diversifying ones portfolio.
Farmland as an asset class holds a strong appeal for investors. It offers returns that can rival those of the stock market but with significantly less volatility. This makes farmland an attractive prospect for many seeking stabilities in their investments, especially in turbulent times.
The interest in farmland investment has surged, with investors seeking alternative options to diversify their holdings. When comparing returns, it's crucial to consider investment volatility, where farmland stands out as the safer choice. Over the last two decades, stock markets have experienced multiple corrections, including the dot-com bubble, the great recession, and the recent pandemic.
The risks faced by farmland investors differ significantly from those in the stock market. While there is some overlap, such as interest rate risk, the nature of these risks varies. For instance, in the stock market, expensive debt can squeeze business profitability and impact stockholders who use margin trading. On the other hand, in farmland, high-interest rates can make equipment and land purchases costlier, affecting the earnings potential of agricultural properties.
Farmland Investment Risks:
Farmland investors encounter unique risks not seen in the stock market, including weather risk, crop risk, and liquidity risk. Natural events like droughts can significantly impact a farmer's ability to pay rent or soil quality, unlike stock ownership, which isn't directly affected by such events.
Stock Market Risks:
Conversely, farmland investors are shielded from certain stock market risks, such as company-specific issues, market-wide volatility, and political events. Stock market investors are vulnerable to dramatic share price swings tied to individual company performance and macroeconomic events, which farmland investors rarely experience.
The methods for purchasing stocks and farmland differ significantly. Stocks can be easily acquired through brokerage accounts, while farmland transactions involve working with real estate agents, negotiating terms with sellers, obtaining financing, and managing property rentals—a more protracted process.
In conclusion about farmland vs. stocks:
When deciding between farmland and the stock market for your investment strategy, consider a mix of both. Diversification is key to spreading risk across various asset classes. Farmland tends to offer consistent returns and acts as a hedge against market volatility.
However, remember that both asset classes come with their own unique risks, and your investment philosophy should dictate how you mitigate them. While it has become easier to access farmland investments with specialized brokers, liquidity remains a challenge compared to stocks. Therefore, maintaining a diversified portfolio that includes both farmland and stocks can help reduce overall risk and enhance your investment strategy.
Jesper Kjær ApS has been facilitating investment projects in Poland, Lithuania, Latvia, and Estonia since 2001, with a particular focus on agriculture since 2003. Over the years, we have developed an extensive and efficient network, enabling us to collaborate closely and offer our investors the best possible opportunities.
If you don't find exactly what you're looking for, please feel free to contact us. We have properties that have yet to be posted online.