The asset class of farmland has been a reliable investment for decades. Farmlands negative correlation to the Dow Jones Industrial Average is an impressive -43% over a three year period. This makes it an excellent hedge against market volatility.
Since 1987, when institutional investors started to include farmland in their portfolios, the asset has been steadily increasing. Similarly, investments in sustainably managed farmland can transform agriculture from one the biggest sources of greenhouse gases emissions into one of the largest carbon sinks.
Farmland investments are a great way to generate passive income or a hedge in any economic situation, but direct investments into this asset have been difficult to access.
Farmland is one of the oldest investment types, but the average investor hasn't had the same access to it as institutional investors or billionaires.
This is changing thanks to revolutions in fintech, and other startups.
COVID-19 had a profound impact on the world, in ways that we could not have foreseen. The markets were no different. In mid-March, the S&P 500 plunged 34% from its pre-COVID peak level. The index recovered just one month later, unlike previous crises.
However, this doesn't mean financial markets are fully recovered. Since then, we've seen plenty volatility in the form both of gains and losses. Many investors have had to sell some of their equity portfolios.
Here is where farmland came in to the discussion.
An asset class that has been historically stable
Before COVID-19, wild stock market fluctuations were common. Volatility was at its highest in 2018, even though the economy grew before the pandemic. Investors need to balance stocks and funds because of the unpredictable nature of the equity market.