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Alternative investments, or alts, are investment opportunities excluding stocks, bonds, and cash.
This include options like farmland, art, collectibles, precious metals, wine, cryptocurrency, venture capital and more.
Many financial advisors actually advise investors to allocate up to 20% of their portfolio to alts.
This is because alternative investments provide investors with strong diversification.
A portfolio made up of stocks and bonds alone are at risk of loss in times of economic downturn. Portfolios built up of a number of asset classes with low correlation to the stock market fare much better.
Farmland and wine, though very different, actually have a number of similarities.
In this article, we take a closer look at how farmland compares to wine as an investment.
Which one provides more benefits? Which has better returns? And which is easier to invest in?
Let's dive in to farmland vs wine!
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Farmland vs Wine
Farmland and wine are two popular alternative investment options for largely similar reasons.
Both of these assets provide an investor with strong diversification as both have low correlation to the stock market.
In periods of market uncertainty, farmland and wine typically hold their value while the stock market falls.
Consider the 2008 market crash as an example. In 2008, the S&P 500 fell 38%. On the other hand, farmland and wine fell 3.8% and 0.6% respectively.
Additionally, they both provide a natural hedge against inflation. This is due to the fact that they are both physical assets and have intrinsic value.
Physical asset generally perform well during times of high inflation.
Diversification, low correlation to the stock market, and hedging against inflation are all good reasons to invest in an asset. But perhaps the most important reason to consider these assets are the returns.
For both farmland and wine, historical performance has proven strong and steady returns.
We'll take a closer look at returns further on.
How To Invest
Investing in farmland and wine has been difficult in the past.
In fact, the majority of investors holding these assets were high net worth individuals. But that has largely changed over the last few years.
With farmland, you can get started by purchasing land outright. Of course, this can be difficult, not to mention expensive.
However, investors also have the opportunity to buy shares of a farm on a farmland investing platform.
Similarly, with wine, investors also have the option to purchase a bottle directly on their own.
While an individual bottle costs less than a farm, it can be difficult to source a bottle of investment grade wine.
With wine investing platforms like Vint or Vinovest, investors can sit back while bespoke portfolios of wine are built for them.
Finding suitable farmland is definitely easier said than done. And once the farmland is purchased, the work required to manage a farmer-tenant or grow crops is significant.
On the other hand, finding a bottle of investment grade wine can be achieved through an online auction like Zachy's Wine Auction.
However, the storage and insurance of fine wine can be quite costly.
Both of these assets have shown strong performance historically.
Of course historical performance is not necessarily an indicator of future performance. But as shown below, both farmland and fine wine investments have done quite well throughout the years.
- According to AcreTrader, United States farmland has provided average returns of 12.2% per year since 2000.
- On the other hand, fine wine, according to Vint, has averaged a return of 8.5% over the last 121 years.
Compared to the S&P 500, which averages 8-11% per year, both farmland and wine keep pace with and even rival the stock market.
When it comes to investment strategy, farmland and wine have more differences than similarities.
While both asset classes gain value through appreciation over time, farmland also provides immediate cash flow.
- Investors can earn gains through the sale of crops grown on the land.
- They can also rent the land to farmers and collect monthly rent payments.
Wine, on the other hand, does not provide monthly cashflow.
It is a non-yield bearing asset. In fact, wine can have high storage and insurance costs that eat into potential returns.
If you are looking for monthly cashflow, then farmland may be the better asset for you. However, on the other side of the coin, farmland also requires more of a time investment.
Finding a property and closing the transaction can take months. Managing the land is also a significant time investment. With wine, after a transaction, you just have to consider the storage and insurance.
Farmland and wine, like any other investment, have unique risks.
With farmland, earnings can be impacted dramatically based on weather, commodity pricing, interest rates, and crop yields. Some of these risks can be mitigated by renting the land out to a farmer and collecting rent regardless of crop yields.
However, with this strategy, you run the risk of tenants not paying rent.
Wine investments, on the other hand, have a major risk of damage during transportation and storage. With wine investments, investors must also be careful of fraud.
Ensuring a wine investment is authentic is critical.
Additionally, wine's value also moves due to the opinion of consumers and critics. Investors holding a particular bottle of wine may be impacted if a negative critique is released.
Farmland vs Wine: Final Thoughts
Both farmland and wine provide investors with an attractive option outside of stocks.
In addition to strong historical performance, these assets are also both tangible and resistant to inflation.
Farmland does offer investors monthly cashflow through the sale of crops or through renting the land in addition to appreciation over time. However, this cashflow comes with a price of more management than a wine investment.
Wine investments, like farmland, gain value through appreciation over time. While both assets can be difficult to source a great deal, wine certainly requires less work after the transaction.
It should be noted that both of these asset classes are long term investments.
If you are interested in farmland or wine as an investment be sure to check out these guides: