Mainstreaming Alternative Investments and Farmland Investing

The investment landscape is evolving rapidly, with traditional assets like stocks and bonds no longer the only options for savvy investors. Alternative investments, particularly farmland investing, are gaining traction as a viable means to diversify portfolios and seek higher returns. This shift is not just a trend but a significant movement that is democratizing access to investment opportunities for individuals and institutions alike.

With the growth of technology, platforms are emerging that allow individual investors to participate in markets that were previously reserved for the wealthy. As we explore this topic, you’ll discover how alternative investments, specifically farmland, are becoming a mainstream choice and learn how to navigate this new terrain.

Understanding alternative investments

Alternative investments refer to assets that fall outside the traditional investment categories of stocks, bonds, and cash. They encompass a diverse range of options, including real estate, commodities, hedge funds, private equity, and more. The appeal of these investments lies in their potential for higher returns and lower correlation with the stock market, which can help mitigate risk.

One of the defining characteristics of alternative investments is their liquidity. While stocks and bonds can be traded relatively easily, many alternative investments tend to be less liquid. This means that investors may have to commit their capital for extended periods, often five years or longer, before they can realize returns. Examples of such investments include:

• Venture capital
• Private equity
• Hedge funds
• Farmland investments

Despite the challenges posed by lower liquidity, the benefits of alternative investments can be substantial. For instance, during times of market volatility, investors often turn to alternatives, which tend to experience less price fluctuation compared to public securities. Additionally, alternatives can enhance portfolio diversification, a crucial factor in long-term wealth accumulation.

Consider farmland: according to the USDA, it has generated an average annual return of 11.5%, significantly outperforming the historical stock market average return of around 9.2%. This compelling performance is prompting investors to explore alternatives more actively.

Institutional investors’ demand for alternatives

Since the 1980s, when Yale University began advocating for alternative investments, institutional investors such as university endowments and pension funds have recognized the value these assets can bring to their portfolios. With longer investment horizons, these institutions are more willing to accept lower liquidity in exchange for potential higher returns.

Recent statistics highlight this trend: as of mid-2020, the largest investment funds globally allocated an average of 23% of their assets to alternative investments. Notably, Yale's endowment boasts a staggering 77% allocation to alternatives. Furthermore, McKinsey reports that private assets under management have surged by over 170% in the past decade, reaching approximately $6.5 trillion worldwide.

Why this continued interest in alternatives? Investors are increasingly convinced that the returns justify the illiquidity. A survey by Nataxis revealed that 71% of investors believe that private investments deliver adequate returns for the reduced liquidity, with median fund managers achieving an internal rate of return (IRR) of around 12%. This performance often eclipses that of public markets.

The surge of farmland investment funds

The increasing acceptance of alternative investments has spurred a significant rise in farmland investment funds. According to Valoral Advisors, which specializes in agricultural investments, the number of firms focused on farmland has expanded from just 19 in 2005 to 166 today, marking an annual growth rate of nearly 16%.

This trend shows no sign of abating. In a Preqin investor sentiment survey conducted in April 2020, 29% of respondents indicated plans to enhance their alternative investment exposure in light of the COVID-19 pandemic. Investors continue to seek out farmland for its attractive characteristics, including:

• Low volatility
• Potential for higher average returns
• Inflation hedging
• Strong market fundamentals

The correlation between food prices and inflation further supports the case for farmland investing. As inflation rises, so too does the price of food, thereby increasing land values. With the ongoing concerns over inflation and diminishing farmland supply, the appeal of this asset class continues to grow.

Increased accessibility of alternative investments

The democratization of alternative investments is transforming the landscape for individual investors. A survey conducted by AMG Funds revealed that 83% of Millennials are open to incorporating alternative investments into their portfolios. This shift highlights a growing awareness of the potential benefits these assets can offer.

Historically, investing in alternatives was fraught with barriers, including high minimum investments and the need for sophisticated financial advice. However, technology has revolutionized this space. Now, platforms like FarmTogether allow accredited investors to access farmland investments with a minimum entry point of just $15,000, making it feasible for a broader audience.

This evolution reflects a significant cultural shift in investing, as more individuals seek to diversify their portfolios beyond traditional asset classes. With the right tools and knowledge, anyone can explore these investment opportunities.

The rise of farmland investing

Farmland investing exemplifies how alternative assets have become accessible to individual investors. Its inherent advantages are prompting more people to consider this sector as a viable investment option. Key benefits of farmland investing include:

• Stable income generation
• Protection against inflation
• Long-term appreciation potential
• Contribution to sustainable agriculture

As global populations continue to grow, the demand for food is expected to rise, further enhancing the value of farmland. The confluence of increasing food prices and diminishing land availability creates a favorable environment for farmland investments. Despite historical challenges, such as high costs and lack of market transparency, the barriers are gradually being dismantled, allowing for greater participation.

For those new to this investment space, resources like The Definitive Guide To Farmland Investing provide valuable insights into the nuances of the market and how to navigate it effectively.

Investing with FarmTogether

FarmTogether is at the forefront of the farmland investing revolution, providing an intuitive platform that simplifies the investment process for accredited investors. Through their platform, users can explore curated farmland investment options, access due diligence materials, sign necessary legal documents, and monitor their portfolios—all in one place.

Investors can engage in various investment vehicles, including direct investments on the FarmTogether platform or through self-directed IRAs. This accessibility marks a pivotal moment in the investment landscape, as it allows more individuals to take advantage of alternative investments within their retirement accounts.

In 2020, FarmTogether experienced a remarkable 178% growth in platform users, driven by a heightened interest in alternative assets and ESG (Environmental, Social, and Governance) options. As investors seek refuge from stock market volatility, the challenges faced by traditional bonds, and concerns about inflation, the demand for farmland investing remains strong.

With the investment landscape continuing to evolve, platforms like FarmTogether are paving the way for a new generation of investors, making farmland investing accessible and appealing to a broader audience than ever before.

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