Don't Settle For Gold When You Can Buy Dirt
The Dynamic Wealth Report
August 3, 2010
by Corey Williams, Editor
Now, more than ever, you need Agriculture.
Ag will always be near and dear to my heart. The cornfields of Nebraska
are a part of me. It’s where I spent the first eighteen years of my
life.
It was during those years on the farm I developed my love of financial
markets. And I’ve been fascinated with them ever since.
These days I spend most of my time watching the stock market. But a few
times every year I revisit my roots.
And what I found recently even surprised me…
You see, my family farmed a stretch of land in central Nebraska for over
a century. Right up until it was my turn to take the reins. But instead
of picking up where my father left off, I took on my own path.
Now we rent our treasured farmland to a few of the neighbors. And what
was once our family’s lifeblood, is now just another asset on the books.
But what an asset it’s been. In fact, boring old dirt is one of the best
performing assets in my long term portfolio.
Ag Real Estate is appreciating in value and generating income.
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Every year the Department of Agricultural Economics at the University of
Nebraska, Lincoln publishes a report. The yearly report highlights the
Nebraska Farm Real Estate Market.
It’s telling me one thing. Buy farmland.
But not just any farmland, cropland with water rights. This is land most
suitable for growing cash crops like corn and soybeans.
Ten years ago you could have bought an acre of irrigated cropland in
Nebraska for $1,760. You could sell that same acre today for $3,271.
That’s an average annual return of better than 8.5%!
Not too shabby when you consider the S&P 500 was at 1,500 in September of
2000. And today the S&P 500 is at 1,125.
That’s an average annual loss
of 2.5%.
Boring old dirt has outperformed 500 of the best U.S. companies by 11%
per year for the last decade.
But that’s not all…
Right now you can buy an average 100 acre parcel of irrigated cropland
in Nebraska for $327,100.
The same 100 acres can be rented for around $200 per acre. $20,000 of
cash right in your pocket every year. Before taxes, that’s a 6.1% yield.
Add your appreciation to your yield and your average total return per
year jumps to 14.6%!
It doesn’t stop there. Rents are up an average of 6% per year. (It’s a
rock solid increasing yield. It puts more money in your pocket every
year.)
That’s just amazing to me… Even so, I don’t see the appreciation of
farmland slowing anytime soon.
Here’s why…
Farmland has better than a 90% correlation with inflation. In my opinion,
it’s the best hedge against future inflation. Even better than gold!
Gold bugs will argue with me. Let me ask you… Have you ever collected a
6% yield on your gold holdings?
You’ll be glad to know farmland is also a great hedge against the stock
market. While the market jumps about, farmland is stable. In fact,
farmland has only had three down years in the last century.
Most recently, farmland prices fell in 2008. But compared to every other
asset, the decline in farmland was small. It’s bounced back from the
decline and appreciated the last two years.
Best of all, the opportunities to buy farmland over the next decade are
more exciting than ever.
Market demographics are changing…
I’m the perfect example. Fewer and fewer family farms are being passed
down to the next generation.
As the current generation of farmers retires, it’s creating a unique
opportunity. A full 54% of land sales in Nebraska last year were
quitting farmers or estate sales.
And it’s not just a local phenomenon. It’s happening all across the
country.
Think of it, land has been passed down from generation to generation. In
some cases, farmland will go up for sale for the first time in more than
a century!
We may never see it again in our lifetimes.
In short, irrigated cropland is great hedge for your investment
portfolio. And with the changing demographics, opportunities to buy are
cropping up now.
It’s the perfect time for you to begin your research. Remember, real
estate is highly localized. You’ll need to do your homework. But the
rewards are truly spectacular.
The IPO market was hot again last week with three new companies hitting
the market. Chesapeake Midstream Partners (CHKM),
Envestnet (ENV), and
Molycorp (MCP) all completed successful IPOs. Of the three, only MCP
closed below the offer price on opening day.
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