What Makes Land a Safe Asset?
#2 will surprise you.
Land has a lot of great qualities.
In this article, we focus on the characteristics that make it one of the safest assets to invest in at the moment.
1. It Is Tangible
Land, such as gold and real estate, is a tangible asset. It means that even in the unlikely case that its value decreased promptly, its owner would still own something.
This isn’t the case for stocks.
How tangible stocks are depends on the company itself.
Shareholders will receive a proceed of the sales of the company’s material in case it goes bankrupt, which is great if the company holds valuable and hard assets.
Eg: airlines own planes (but not always), restaurants own cooking material, factories own technologies and raw materials.
If the company is mainly a service company with financial and intellectual assets, the loss will be greater.
Eg: banks, marketing and advertising agencies, etc.
2. It Cannot Go Bankrupt
Land, unlike a company or a borrower, cannot go bankrupt.
The plot will always be available for farming.
When you invest in land, you invest into a productive asset producing valuable output (in this case, food), that will always be needed and cannot be “replaced by technology”.
The risk of losing your money is much lower than in the case of P2P lending, or real estate crowdsourcing, as these depend on a borrower that may not be able to refund at some point.
3. It Cannot Be Stolen
Many Hollywood movies feature a team of thieves stealing gold or jewelry to become rich and retire.
I like to think that had the victim invested in land instead of gold, the story would not have happened the way it did.
Land can difficultly be seized (except by the state), stolen, or lost.
Once it’s there…it’s there.
4. It Has Multiple Purposes
Farmland doesn’t have to remain farmland. It can be transformed into grassland, forestland, biodiversity land, commercial land, or even, residential land.
Because it can be used for a wide range of purposes, land will always deliver a dividend to its owner.
It remains flexible as the needs evolve.
5. It’s an Inflation Hedge
One of the main risks investors face is inflation.
Rapid inflation is inversely correlated with stock market performances.
While gold has historically been known as a hedge against inflation, it’s been delivering underwhelming performances at a time when inflation has never been as high in the last 50 years.
Real estate is another effective hedge against inflation. It is however dependent on finding tenants willing to pay rent.
Furthermore, the cost of energy will strongly influence how much rent the landlord will be able to ask the tenants to pay.
Land does not suffer from this problem. It produces food that follows the Consumer Price Index, hence doesn’t lose any value, unlike cash.
6. It Is Uncorrelated to the Stock Market
The stock market has become such an important actor in the economy that its mere crash can impact the entire world GDP, as shown in 2008.
Bonds, gold, and real estate rise and decrease in value (though not in the same way) according to the economy seen through the prism of the stock market.
Assets uncorrelated to the stock market are called “alternative assets”. Their value is often intrinsic, and they’re unlikely to be influenced by the economy.
These can be wine, luxury items, art, collection cars, or even, stamps.
Land is one of them.
When you hold land, you can safely rest assured that the value of your asset won’t move up and down in an uncontrollable way.
7. We Will Always Need Land
Until humans manage to leave earth on an Elon Musk starship, land will always be needed.
Be it for growing food, timber, or simply living on it, land is a scarce and finite commodity we will never be able to do anything without.
It’s the oldest asset in the world. And one we still need the most.
The content LandEx’s blog is for informational purposes only, you should not construe any such information or other material as investment, financial, or other advice. Nothing contained on the LandEx Medium blog constitutes a solicitation, recommendation, endorsement, or offer by LandEx or any third party service provider to buy or sell any financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.