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Investing in Rural Land

Investing in rural land is suited to long-term investors who are looking for an inflation protected investment alternative to stocks and equities, without having to be exposed to counter-party risk. 

Positive correlations to Inflation

Land as an asset class has had a positive correlation to inflation, the value of which generally continues to rise, even when global currencies face devaluation. The chart below demonstrates the swings in inflation and interest rates from 1945 to the present in the US; which, in turn, affected other markets across the world.  


Source: The Big Cycle of the United States and the Dollar, Part 2, Ray Dalio, Bridgewater Daily Observations c. 2020
 

In contrast, the real return for bills since 1912 has been -0.2% globally (in fact, in France, Italy and Japan you would have lost over 2% a year). The chart below shows the downward pressure in global currencies between 1965 - 1977, as they correlate to gold.

 

Source - The Changing Value of Money, Ray Dalio, Bridgewater Daily Observations  c. 2020

As has been commonly noted, there are very large risks in storing wealth vis holding interest-earning cash currency - especially late in debt cycles. As the chart below demonstrated, the real return of bills has provided bad real returns about half the time, and have been particularly lower in recent years. 


Source - The Changing Value of Money, Ray Dalio, Bridgewater Daily Observations c. 2020


Equities have also performed well - however, returns have gradually shrunk over the in the last 10 years when compared to the previous 50 years. 

In comparison, the value of rural land, for example farm real estate in the United States and United Kingdom, has continued to climb steadily at 6.6% and 7.5% respectively:

Source - USDA - NASS - Land Values: Average Farm Real Estate Value by Year, US c. 2019


Source: Variation in Farmland Values, Savills, c. 2015

In addition to being inflation-protected, continued population growth (1.08% globally in 2019), an increase in companies offering remote work and advancements in self-driving car technology and personal drone transportation are reasons investors consider adding rural land to their portfolios.