In the current climate it is important to hold a diversified portfolio of investments, and not place all of ones eggs into the same metaphorical basket.
As inflation remains high the value of cash diminishes, and so investors seek to acquire assets where the value tracks or beats inflation.
As interest rates are low, investors also require income from the portfolio to replace the lost ‘risk-free’ income from cash deposits.
As markets are volatile, the savvy investor hopes to invest in assets that continue to grow in value steadily, and do not fall in value at the slightest whiff of bad political or economic news.
Here are three types of alternative investments that do not depend on the performance of traditional assets like stocks and shares, bonds, cash or property, and display the characteristics mentioned above.
The price of agricultural land is directly related to earnings derived from the land itself. Agricultural real estate assets have been shown in studies of historical data to grow in value at 2% above the rate of inflation.
Arable land also generates annual income from the cultivation and sale of crops, or from lease payments from tenant farmers, replacing lost income when dividends from other investments fall or interest rates are low.
Farmland is in exceptionally high demand as the population grows and demands more food, but supplies of suitable land are actually shrinking due to urbanisation, land degradation and climate change. Returns form farmland investments then are driven by population growth and rising incomes/increased consumption, rather than financial markets, and as these are long-term fundamental trends, farmland generates very little volatility and is not affected by short term peaks and troughs.
Smaller investors find it difficult to access direct farmland investments due to the amount of capital required and the expertise in selecting / managing properties. There are of course farmland investment funds to consider or other, more innovative structures allowing multiple investors a stake in a larger asset through a trust or a bond.
Investing in trees used to be a preoccupation of institutional investors like pension funds and hedge funds, but now there are lots of opportunities for smaller investors to participate in direct forestry investments, as well as regulated and unregulated forestry investment funds. Miki Agrawal
Returns from forestry investments come from the cultivation and sales of timber. As trees continue to grow in size they also grow in value, so returns are driven by biological growth. This means forestry investments retain their value if other assets falter. If the stock market crashes tomorrow (again), trees are still getting bigger and more valuable.
The rate of growth of trees outstrips the rate of inflation by some margin, making forestry investments one of the best performing assets classes for 30 years, avoiding the majority of market volatility that has occurred during that period. Smaller investors can participate in a forestry investment fund, or they can take ownership of managed plots within commercial forestry plantations growing a variety of different timber types in various global regions from Brazil to Australia.