Inflation breaks records every year— causing serious harm to the economy. The sudden downfall in the purchasing power of currency turns the world upside down.
It is an inevitable force that slows down the economy and causes chaos all over the world. Inflation lowers the value of investments and cash savings. It’s a negative force that can affect the returns high-yielding investment can deliver.
Therefore, investors must diversify their investments to inflation-proof their portfolios.
Hard assets are lucrative and possess genuine value. These assets are tangible and work as a hedge against inflation better than other assets.
However, land can deliver exceptional returns without many risks. As a matter of fact, land is the best hedge against inflation that ensures the safety of your capital.
Unquestionably, inflation can’t be avoided or overlooked as it is an essential part of the financial system. Plus, the post-pandemic period demands investors to inflation-proof their portfolios.
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What’s the Best Hedge Against Inflation?
Investors must diversify their portfolios to prevent the negative effects of inflation. In other words, diversifying your portfolio means you don’t put all your eggs in one basket. You own multiple assets that protect your capital from risks.
When one or multiple investment assets fail to deliver expected returns, other assets cover the damage with returns. As a result, your investments remain unharmed during the inflation period.
You might have thought of investing in high-performing assets including, commodities, TIPs (Treasury Inflation-Protected Securities), real estate, gold, silver, and REITs (Real Estate Investment Trusts).
However, the return you get from these assets can vary. So, you may wonder which asset is the best hedge against inflation. The short answer is the land.
Is Land a Good Hedge Against Inflation?
Back in time, then the cost of agricultural land per acre was $20 in the year 1900. In the United States, there was an average of 4.5% of surge in the cost of farmland per acre over the last two decades.
Farmland price per acre was approximately $4,442 in the year 2019 that depicting a $2,394 hike in the monetary value. The value of an acre of land in the least valuable state is approximately $2000.
The value of land is majorly determined by its use and location. Whereas developed plot of land is more likely to have higher prices and appreciate quicker compared to undeveloped land.
Let’s take a look at returns farmland produce and inflation during 1991-2018.
Most investment assets are vulnerable to inflation and undergo value reduction. Whereas land holds its value or at least keeps your investment secure during inflation.
Related: Investing in Farmland – 6 Easy Steps to Get Started
An inflation-proof portfolio includes land and other tangible assets that aren’t volatile. Here are some main reasons why land is the best asset to add to your inflation hedge portfolio:
Land Is a Tangible Asset
Land is a finite, stable, and tangible investment asset. It can’t wear down overnight or become valueless. Land can serve as an effective hedge against inflation with its potential to hold value and generate higher returns.
Hands-off Investment
Land is easy to maintain asset and thus inexpensive to possess. Land investment has less competition compared to its alternatives. Land is a long-term investment and gives its owner peace of mind.
Land Is a Safe Investment
Adding land to your portfolio can yield higher returns without much risk. Investors can lower their portfolio’s volatility and generate good returns by adding land.
Investing in land provides an opportunity to generate higher returns through multiple types of properties. You can buy and sell different valuable properties without face-to-face interactions.
Exceptional Performance over Years
Investors can not only produce desired returns through land but can also make money off their land. Land, particularly farmland, has produced excellent returns at the time of high inflation. Gold between the years 1960 to 2012 increased only by approximately 8%.
Whereas farmland, on the other side, has delivered 11.1% of impressive returns when the inflation was approximately 4%.
Investors can not only produce desired returns through land but can also make money off their land.
Land Outperforms Alternative Assets
Gold is also a valuable asset to hedge against inflation. It has been a popular investment among investors worldwide. Nonetheless, farmland has outperformed it at the time of inflation. Land ownership indeed comes with the limitation of tight liquidity but is also profitable as a long-term investment.
Land is undervalued and often neglected by investors. Instead, most investors see great potential in gold investments. However, land has grown in value higher than gold through the years. Here is the average residential land cost per acre and gold from 1957 to 2018.
(Data Source – AEI, FRED)
Commercial real estate is more valuable compared to farmland and more likely to generate higher returns. However, farmland has gained a victory over commercial real estate by generating better returns over time.
Another basic but significant benefit land offers is favorable supply and demand. Beginner investors can own a small plot of land to hold for a certain period and build wealth safely.
The Bottom Line
As you can see, land became more valuable over time and served as the best hedge against inflation. Landowners can safeguard their portfolios and combat inflation through strategic land investments.
Investors who need to diversify their portfolio can put money into the land along with other assets tangible like gold. If you haven’t considered land to invest in and diversify your portfolio, it’s high time to give it a shot.
We hope that you are convinced land is the best asset to hedge against inflation. APXN Property provides buyers with lucrative land buying opportunities to acquire the land of their dreams. Buyers of all types can find the best raw land in Oregon, Arizona, and other states at reasonable prices.
