Asset Allocation with Farm Land

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jamokaj
Posts: 1
Joined: Wed Oct 04, 2017 7:54 am

Asset Allocation with Farm Land

Post by jamokaj » Wed Oct 04, 2017 8:05 am

Hi folks -

Great web site - lots of useful information.

I have a question regarding farm land real estate in the context of overall asset allocation. I own approx $4M in farm land (corn, soy beans) which is rented out annually for cash rent. This cash rent provides a return of roughly 2-3%. This farmland represents 2/3rds of by investment portfolio.

I also have approx $2M in other investable assets, 75% in tax except, 25% in taxable accounts.
These non farm assets are in vanguard 3 fund portfolios split 55% stock, 45% bond. I would like the overall asset allocation of all my investments to be 55% stock and 45% bond. My question is should the farmland be treated like stock or bonds (or other) when considering overall asset allocation.

Thanks for your thoughts.

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ruralavalon
Posts: 11287
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Asset Allocation with Farm Land

Post by ruralavalon » Wed Oct 04, 2017 2:12 pm

Welcome to the forum :) .
jamokaj wrote:
Wed Oct 04, 2017 8:05 am
Hi folks -

Great web site - lots of useful information.

I have a question regarding farm land real estate in the context of overall asset allocation. I own approx $4M in farm land (corn, soy beans) which is rented out annually for cash rent. This cash rent provides a return of roughly 2-3%. This farmland represents 2/3rds of by investment portfolio.

I also have approx $2M in other investable assets, 75% in tax except, 25% in taxable accounts.
These non farm assets are in vanguard 3 fund portfolios split 55% stock, 45% bond. I would like the overall asset allocation of all my investments to be 55% stock and 45% bond. My question is should the farmland be treated like stock or bonds (or other) when considering overall asset allocation.

Thanks for your thoughts.
Real estate, including farm land, is "other".

Although it produces income, it is not a fixed rate or amount, so it's not like a bond.

I don't believe value of farm land is highly correlated to the stock market, so it's not like a stock.
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CnC
Posts: 153
Joined: Thu May 11, 2017 12:41 pm

Re: Asset Allocation with Farm Land

Post by CnC » Wed Oct 04, 2017 2:25 pm

While it is cash rent, it should still be classified as "income" in your portfolio.

Meaning the $100,000 you make a year off of the farm ground should be treated like income. Meaning that for retirement purposes your $250,000 a year required expenses should be treated as $150,000.

All that being said farm ground much like my pension would make me consider being a bit more agressive with my AA than I would without it.


The problem is, if you consider your farm ground as a "bond" which you could it would pretty well destroy any type of asset allocation you could come up with because even if you put 100% of everything else in stocks you would still be at 66% bond and 33% stock.

This defeats the purpose of conservative asset allocation because you can not sell portions of your ground when the stock market dips the same way you would sell a bond.


A bit more logical question is why do you want a 55/45 asset allocation?

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