Is Land a Good Investment During Conflicts?
Conflicts are particular periods during which the investment landscape becomes highly volatile. Some assets decrease while other assets increase.
In this article, we’re looking at how stocks, bonds, cash, gold, real estate, and land behaved in the following situations:
- The country has its territory involved in the war.
- The country has its army involved in the war.
- The country trades with one of the countries involved in the war
The Country Has Its Territory Involved in The War
If we take Germany during the second world war as a case study, neither stocks, bonds, gold, cash, nor real estate could have helped investors protect their assets.
The stock market was closed for six months at the end of the war, and only functioned normally in 1949.
As the regime was falling, most of the gold disappeared from the banks and has never been recovered.
Bonds and cash were effectively worthless due to Reichsmark’s soaring inflation.
And the cities had been heavily damaged by allies bombing, which made real estate a risky investment.
The investment that was the least likely to lose any value was land.
Land could not be destroyed to the extent that a house could. Land could not be stolen. It could be seized or confiscated, but it could not be “moved” to another country like gold or jewelry.
Furthermore, land was valuable as food was scarce. Land helped it produce it, whether through agriculture, or grazing.
While the value of land often decreases during the conflict, it is likely to increase after the conflict due to the need to produce food and rebuild.\
Land may be the best asset to hold in a country directly engaged in a war.
The Country Has Its Army Involved in The War
Let’s take the United States during World War 2 as a case study.
When it comes to stocks, Investopedia has compiled a few trends.
The first trend they observed was that stocks were down during times of uncertainty.
It means that investors were warry to invest when it was unclear whether a war would break out or not, and what would be its intensity.
The market also considerably went down on the first day of the war, but went back up afterward, as outlined by the second trend.
The second trend concerned the fact that over the long term, the stock market always recovered. While war decreased the value of the stock market in the beginning, the market had appreciated at the end of the war.
The third trend spoke about the fact that it was very risky to own individual stocks.
War often speeds up technological advancements which makes companies redundant, while others suffer too much from the casualties of the war and go bankrupt.
In 1917, Forbes published a list of the 100 largest U.S. companies.
In 1987, 61 of these companies had disappeared. The few that still existed were nowhere near their peak half a century earlier.
Investors are therefore advised not to own individual stocks, but to diversify as much as they can.
When it comes to cash, investors often flock to reserve currencies like the US dollars. However, cash is currently a very bad investment due to soaring inflation at levels unseen since the 1980s across all currencies.
Conventional investing advice says to buy gold in times of uncertainty. However, it has often been observed that gold is not an “investment” per se as it doesn’t produce anything, but acts as an inflation hedge. Over the long term, equities do much better than gold.
Bonds, ironically, were a risky investment. If the country lost the war, the value of the bond was likely to go to zero, such as what happened to Germany. On top of being risky, they yielded a mere 2.9%.
Finally, let’s talk about real estate. Real estate’s value increased by 50% between 1940 and 1955 in the US.
The reasons are that with or without the war, the country was still growing its population. This meant that it also needed to produce more food, not only for its own people, but for the troops abroad and the allied countries that were more focused on fighting than farming.
War made land even more precious than it already was.
The Country Trades With One of the Countries Involved in The War
It’s impossible to give general trends regarding the impact on asset value in countries not involved in a war but that maintain trade relations with those that are.
The only certainty is that assets value will be impacted. As shown by the pandemic, the economy is entirely globalized. What happens on one side of the world ripples on another side.
War efforts usually lead to higher consumption of goods and services. More consumption means less traded volume and less supply, which means higher prices.
Furthermore, war often leads to economic sanctions restricting business with one or several countries participating in the war. This also contributes to inflation.
We can therefore expect that in the context of a Russian-Ukrainian war, prices of energy and raw materials will increase, which will ripple through almost all other industries.
Gold will also be affected, but it is difficult to estimate at this time whether investors will buy gold or not.
As for bonds, they have been having historically low returns.
We can reasonably predict that central banks will keep on borrowing to finance the efforts spent to offset the consequences of the war. This would contribute to even more inflation. Cash is therefore not a good investment at this moment.
The last asset classes are real estate and land.
Real estate sales prices depend on the price of construction material and on the market.
The market depends on mortgage interest rates and supply and demand. If interest rates are kept low and demand high, prices will keep on increasing.
As a result, real estate is an interesting asset to own in times of conflict.
Land’s value has also high chance to appreciate.
Land use may increase to grow food. It can also increase to build factories or infrastructures to offset the lack of trade caused by the war.
As long as the population, its needs, and the impetus for self-reliance are growing, land will increasingly be used and appreciate.
Out of equities, bonds, gold, cash, real estate, and land, real estate and land appear to be the asset classes least likely to lose value and most likely to appreciate in times of uncertainty.
With LandEx, investors have access to a variety of plots selected for their high yield and fast appreciation.
Invest in land today, and protect your net worth against the uncertainties of our times.
Disclaimer: This article is not intended to be relied upon as financial advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor.
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