September 01, 2020

Farmland Performance Compared to AAA Bonds (Video)


Video Transcript

While we've put farmland up against a bunch of other assets to show you our thoughts on volatility, it may be more fair to compare farmland to something that is more of a direct proxy, which is bonds.

So, this slide here is showing us, again, farmland returns versus AAA rated corporate bonds from the Bank of America and Merrill Lynch index, which is widely used here.

This is the point I'd like to have resonate today very loudly. As we can see again, AAA bonds are one of the best proxies to farmland because they are less volatile and they generally produce positive returns every year, similar to farmland.

Both AAA bonds and farmland pay a coupon. With the bonds, a corporation is paying you an interest rate, with farmland, the farmer is paying you rent.

However, with a bond, you are seeking to get out at par value, meaning if you put in $100, you get out at $100. Perhaps a little better or a little worse in the end, but that's ultimately the idea with AAA rated bonds is you don't see as much movement in the underlying price of it.

With land, you have the value of the land compounding underneath you that whole time, and that is why farmland has returned almost double what AAA corporate bonds have over the last nearly 30 years here.

This is a really important point for us, that if you are investing in fixed-income, whether that's bonds or treasuries, again we're not arguing that you shouldn't do those things. Some people own CDs, that's fine too.

I think that what we would highlight is that farmland serves as a decent proxy to that with a very tangible and finite asset backing it up that has compounded over time and we think will continue to.


*Note: The information above is not intended as investment advice. Past performance is no guarantee of future results. For additional risk disclosures regarding farmland investing and the risks of investing on AcreTrader, please see individual farm offering pages as well as our terms and conditions. *