September 2021 Market Update YTD: Real Estate, Farmland, & Gold
As of September 17, 2021, we have seen tremendous returns from both real estate and farmland, far exceeding the S&P500 for the year. Let’s take a closer look at each individual asset class and how they have performed so far this year…
Real Estate: 29.96%
If you haven’t poked around on your favorite real estate listing site lately, both residential and commercial real estate has been climbing in price. Some would argue that tangible assets will continue to rise in response to inflation caused by the economic stimulus, low interest rates, and other factors. The biggest question is how long will prices continue to rise? None of us can tell the future, so it’s best to take these returns while we can and hedge our bets with a diversified asset allocation.
As you can see, farmland returns have been stellar throughout the year based on the performance of REITs that solely own farmland. While certain areas of the country may not have performed as well as others in regards to farmland, the easiest way to track the performance is the REIT (real estate investment trust) which is traded as a security and therefore reports price changes in real time. If you would like to learn more about investing in farmland, our recent article is a good starting point! The short of it is, the amount of farmland lessens each year and the demand for food increases, making the case for continued increases in farmland value.
While not as fun to report on lately, gold certainly holds its own as an asset class. We haven’t seen a rush to gold like we did in 2008-2009 but we also haven’t seen a sustained declining stock market. With the federal reserve talking about tapering, we could see a resurgence in the price of gold in two months, or two years, it’s hard to tell. If you own gold as a protection hedge, you shouldn’t be overly concerned with a single digit down year.
Jim Rickards states, “The confidence of the entire global financial system rests on the U.S. dollar. Confidence in the dollar rests on the solvency of the Fed’s balance sheet. And that solvency rests on a thin sliver of gold…..This is why central banks and governments keep gold in their vaults despite their public disparagement of its role.”
Stock Market: 19.15%
We have seen strong growth in the stock market (S&P500) over the course of this year after the short term correction in 2020. Depending upon the economist you ask, there are many differing opinions on the reasons behind such strong growth in the market. We have surpassed or potentially skipped over the normal correction cycle we would see in the market, which again begs the question, how high can it go? If there is a correction, strong balance sheets tend to do better than strong potential in terms of individual stock prices.
So what is the best strategy moving forward? To add a disclaimer, we invest in all of these asset classes including the stock market, depending upon our clients’ goals and risk tolerance. We believe in alternative options to the traditional stock and bond portfolio which typically includes the aforementioned asset classes; real estate, farmland, and gold. In the Bible, when Nehemiah was called to rebuild the wall, he allocated half of his men to protection and half to build the wall. The same strategy can be applied, with favorable results, to investing. A good diversification strategy that allows you to participate in upside potential, minimize downside risk, and sleep well at night tends to work best for our clients. If you’d like to discuss your investment strategy or simply get a second opinion, reach out today!