By Chris Rawley, CEO Harvest Returns
The Coronavirus scare has taken a toll on the stock market as of late. Much of the volatility in the market is driven by “program trading,” or machine-driven stock selling and buying. Markets these days are increasingly driven by algorithms, instead of human traders.
Thousand point daily swings may work to Wall Street traders’ advantage, but to the average American with retirement savings, they can be a cause for anxiety and concern. Because so much money is locked up in Exchange Traded Funds and index funds, this volatility is magnified for most investors. The CBOE Volatility Index, or VIX as its known, has spike tremendously in the past week.
Graph courtesy of Marketwatch
If you are invested for the long haul, as most Americans who have 401ks or IRAs are, then you should be concerned that a huge network of computers are making split-second decisions that could have a negative impact on your quality of life during retirement.
Income-producing agriculture is one of the alternative investments that can bring you peace of mind in an unpredictable market environment full of account crashing Robo-advisors. Investments in agriculture generally are not liquid, meaning, they are optimized for people who have a long horizon for growing their wealth. A recent article in Investing Daily discusses the role off farming as a tool for hedging against stock market volatility, noting that “agriculture has the properties of a late-cycle investment because of the sector’s projected robust and stable growth for decades to come.”
Most institutional investors such as pension funds or university endowments have significant allocations in natural resources to reduce volatility from their portfolio. These organizations are also focused on long term growth, not short-term gains. Some products, like timber or tree crops (hazel nuts or almonds), can produce a high rate of return, but take several years for the trees and investment to mature. Though row crops like wheat or corn produce one or more harvests a year, farmland is still generally an illiquid asset because the land’s value grows slowly and because it is not readily tradeable. Liquidity is a great feature when you need to get your invested principal out in a hurry — unless everyone else (including those robots working at the speed of data) are trying to do the same thing as prices fall. Then that volatility simply becomes risk.