Investing in real assets such as farmland, timber, and infrastructure can be a way for investors to add alternative assets to their portfolio and increase diversification. These types of investments can provide a source of stable income and offer the potential for capital appreciation.
Investing in Farmland
Farmland is a tangible asset that can produce crops or be used for livestock production. Investing in farmland can provide a reliable source of income through the sale of crops or livestock, cash rental payments, as well as the potential for appreciation in the value of the land itself.
Farmland returns historically have had less volatility than other asset classes, and even in years that the S&P 500 has lost value, farmland has produced a positive return. Farmland can also offer some protection against inflation, as the prices of agricultural products and acreage values tend to rise over time.
Investing in Timber
Timber is another alternative investment that can provide a source of stable income and the potential for appreciation, even in an inflationary environment. Timber can be harvested and sold as lumber or used for paper production, providing a source of revenue for investors. In addition, the value of timber tends to increase over time as demand for wood products grows.
Investing in Infrastructure
Infrastructure refers to the basic physical and organizational structures needed for the operation of a region, state, or country, such as roads, bridges, utilities, energy, and communication systems. Investing in infrastructure can be another way for investors to diversify their portfolio and potentially increase returns.
One benefit of investing in infrastructure is that these assets tend to have a long lifespan and provide a stable source of income. Many infrastructure assets, such as roads and utilities, generate revenue through user fees or other charges. This creates a predictable cash flow, especially since these assets often come with a regulated and contracted revenue model, such as a government contract. Use of infrastructure is also typically non-cyclical, meaning that independent of the state of the economy, assets like bridges, roads, and utilities will still be heavily used.
In addition, infrastructure assets can offer the potential for capital appreciation. As the demand for infrastructure assets grows, the value of these assets may increase. For example, as a population grows, there may be an increased demand for new roads and utilities, leading to an appreciation in the value of these assets.
Infrastructure investments can also provide a hedge against inflation, as the costs associated with these assets tend to rise over time. This can help to protect the purchasing power of an investment.
Benefits and Risks
Farmland, timber, and infrastructure can offer a degree of protection against inflation and provide a hedge against economic downturns and recessions. These assets can also be a reliable source of income. For example, demand for food crops and wood products is generally stable.
But it’s important to note that investing in these alternative assets can also carry some risks. Agricultural prices can be affected by weather, pests, and other factors that can impact crop yields. Timber prices can also be affected by economic conditions and changes in demand for wood products and even housing demand.
Investing in infrastructure also carries some risks. The performance of infrastructure assets can be affected by economic conditions, regulatory changes, politics, and other factors. In addition, infrastructure investments can be illiquid, meaning it may be difficult to sell the assets if the investor needs to access their funds.
Investing in farmland, timber, and infrastructure can be a way for investors to diversify their portfolio and potentially increase returns. These assets can offer a reliable source of income and the potential for appreciation, as well as provide a hedge against inflation. However, it’s important to carefully consider the risks associated with these investments and to conduct thorough research before committing funds.
Delap Wealth Advisory specializes in helping maximize the after-tax, risk-adjusted financial outcomes our clients experience. Reach out to our team today to start a conversation.
This blog is for informational purposes only. It should not be retransmitted in any form without the express written consent of Delap Wealth Advisory, LLC, an investment advisor registered with the United States Securities & Exchange Commission. The contents of this communication should not be construed as investment advice intended for any particular individual or group of individuals. All information, statements, comments, and opinions contained in this blog regarding the securities markets or other financial matters is obtained (or based upon information obtained) from sources which we believe to be reliable and accurate. However, we do not warrant or guarantee the timeliness, completeness, or accuracy of any information or opinions presented herein. Any historical price or value is as of the date indicated. Information is provided as of the date of this material only and is subject to change without notice.
Investing in securities involves the risk of loss, including the risk of loss of principal, which clients should be prepared to bear. No assurance is given that the investment objectives of any investment described in this communication will be achieved. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. The information contained in this blog is not intended as tax or legal advice, and Delap Wealth Advisory, LLC, does not provide any tax or legal advice to clients. You should consult with our firm or other independent financial, legal, and/or tax advisors before considering any investment or participation in any investment program.