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PR - Improving Investment Diversification: Is Farmland As Good As Gold? (p396-405)

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  • Painter, Marvin J.

Abstract

An analysis of Canadian farmland risk and return on investment shows that a Farmland Real Estate Investment Trust (F-REIT) and gold would have significantly enhanced portfolio performance over the past 35 years. Investors who desire low risk portfolios would not have benefited from an F-REIT or gold investment. However, investors in the medium risk category could have improved the financial performance of their portfolios by including an F-REIT investment rather than gold. The financial gains from F-REIT result from a level of risk that is lower than gold, REITs and stocks, an expected yield that is greater than for bonds, and a low correlation with other financial asset returns. The benefit for the agricultural market is that F-REITs inject new equity by purchasing land from retiring farmers and leasing to farmers who want to expand. The benefit for the non-farmer investor and institutional investors is improvement in overall portfolio financial performance. F-REITs can add value to a portfolio by being a hedge against inflation, diversifier and stabilizer, and by providing safety of principal. It is better than gold in some respects, including lower overall risk, less risk of price fluctuation, shorter price cycle (gold has a very long price cycle where it may take years to get back to a price it is currently at), and provides an annual dividend.

Suggested Citation

  • Painter, Marvin J., 2011. "PR - Improving Investment Diversification: Is Farmland As Good As Gold? (p396-405)," 18th Congress, Methven, New Zealand, 2011 345588, International Farm Management Association.
    • Handle: RePEc:ags:ifma11:345588
    DOI: 10.22004/ag.econ.345588
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    References listed on IDEAS

    as
    1. Painter, Marvin, 2006. "The Financial Benefits to Investors in a Canadian Farmland Mutual Fund," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2006, pages 1-9.
    2. Libbin, James D. & Kohler, Jeremy D. & Hawkes, Jerry M., 2004. "Does Modern Portfolio Theory Apply to Agricultural Land Ownership? Concepts for Farmers and Farm Managers," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2004, pages 1-12.
    3. Libbin, James D. & Kohler, Jeremy D. & Hawkes, Jerry M., 2004. "Financial and Real Estate Investments in Mixed-Asset Agricultural Portfolios," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2004, pages 1-11.
    4. Marv Painter & Chris Eves, 2008. "The Financial Gains from Adding Farmland to an International Investment Portfolio," Journal of Real Estate Portfolio Management, Taylor & Francis Journals, vol. 14(1), pages 63-74, January.
    5. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
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