what should i be doing with surplus bankroll?

[Fishhead24]

Here is an article from exactly TWO years ago...........please note, people were questioning my reasoning for buying then too(and missed the boat).



The reasons for the increases in farmland prices are as old as the land itself, but there's also a new one adding to the mix.

Real estate still the best investment

Theory No. 1: There are a few non-farming investors buying farmland, but the number of parcels changing hands in Mower County are either staying in the family or going to neighbors, according to one commonly-held belief.

Another theory is this: When farmland sells for $10,000 to $15,000 per acre in Illinois, that makes Mower County farmland look attractive to investors even at more than $3,000 per acre. These investors are farmers themselves.

People who want to build their dream home in the country are still willing to pay almost any price for an acreage is another theory. However, today woodland with a stream brings almost as much per acre as farmland.

How about, "Record yields and full bins on the farm make that farmland attractive to neighboring farmers?" Maybe.

Lastly, the 1031 Tax Deferral Exchange is the reason for the price increases in land. Even Carnak couldn't divine that reason, but it's true one expert says.

Just visit the Mower County Assessor's office to understand how farmland prices have risen so dramatically.

According to Chief Deputy Assessor Jerry Becker, Mower County farmland prices have increased for the last 17 straight years.

Becker's calculations show that steady increase beginning 1986, when farmland in Mower County sold for an average of $593 to last year when it sold for an average of $2,831 per acre.

But Becker also reported the year (1986) when the new recovery began, a 5-year tailspin in tillable farm land values ended.

"Farmland prices peaked in 1981, when they reached $2,112 per acre for the average sale price," Becker said.

Two years later they fell below the $2,000 or more per acre mark: $1,545 in 1983 and by 1985 they fell below $1,000 per acre: $906 per acre.

They would bottom out in 1986 at $531 per acre before beginning their steady ascent.

Becker has tabulated a peak of 114 farm sales in 1987-88, when 16,772 acres of farmland changed ownership for a total of $12,207,450. (Note: The recording period changed from a calendar year of 12 months to a 12-month period from Oct. 1 to Sept. 30 the next year in 1987-88.)

As farmland prices increased, the farm sales reached a peak in 1999-2000, when 60 farm sales brought $19,706,300. A total of 9,280 acres changed hands that year for an average of $2,035.

"For the last 17 years, farmland prices have gone up anywhere from 5 to 15 percent a year," Becker mused. "If I knew why or where farmland prices were going to go I wouldn't be in here. I would be out buying farmland."

Prices

From Page 1

Becker doesn't believe commodity prices are the reason for the increase. "In some cases they are lower than what they were back years ago," Becker said. "The average farmer in Mower County is not getting rich off a government subsidy check."

Becker said sales records reveal in Mower County 90 percent of the people who acquire land are "existing farmers buying for expansion purposes." The remaining 10 percent are investors.

Randy Queensland, Grand Meadow, credits one thing with the surge in farmland prices: the 1031 Tax Deferral Exchange.

"I don't think any reason has had more of an impact on farmland prices than the 1031 tax Deferral Exchange," Queensland said. "I think it drives most of the real estate transactions taking place."

Under section 1031 of the Internal Revenue Code, a real property owner can sell his property and then reinvest the proceeds in ownership of like-kind property and defer the capital gains taxes. To qualify as a like-kind exchange, property exchanges must be done in accordance with the rules set forth in the tax code and in the treasury regulations.

The 1031 exchange can offer significant tax advantages to real estate buyers, according to Queensland.

Often overlooked, a 1031 exchange is considered one of the best-kept secrets in the Internal Revenue Code.

Art Hollerud, another real estate broker, specializing in farmland agreed.

Hollerud said the 1031 Exchange is allowing farmers to "step up" to the plate and acquire more farmland.

"A week ago, I did a farm sale near Sargeant and we had farmers bidding against farmers for the land until an investor paid $3,200 per acre and bought it," he said.

"We're seeing a lot of investors from the Twin Cities, but more so from Illinois where they are farmers who were paid $10,000 to $15,000 per acre for their land and are now looking westward to buy land."

ISU surveys Iowa farmland values

When they look to neighboring Iowa, they see another surge in farmland prices occurring.

The average value of an acre of farmland in Iowa increased $354 to an all-time high of $2,629 in 2004, according to an annual survey conducted by Iowa State University. Using this average increase of $354. The total value of the state's 32.6 million acres of farmland was up by about $11.5 billion over the past year.

The 2004 average value topped a previous record of $2,275 reported last year, and it represented a 15.6 percent increase over the 2003 average. Mike Duffy, ISU Extension farm economist who conducts the survey, said the effect of inflation on the value of the dollar means that the 2004 figure is roughly the same as the value of land in 1973, before the run-up in values began that led to a peak of $2,147 in 1981.

After the 1981 peak, Iowa land values dropped sharply, reaching a statewide average of $787 per acre in 1986. The 2004 figure represents an increase of 234 percent in the past 18 years.

Values increased in all 99 Iowa counties and topped $1,000 an acre in every county for the first time since ISU began conducting the survey in 1941. Twenty-seven counties had an average value of more than $3,000 per acre this year, compared with only four in that category in 2003. The average value in Scott County this year was $4,167 an acre, the first time a county has topped the $4,000 level.

Where are farmland prices going?

"The last time farmland prices went up in Mower County a lot of dads bought farmland so their sons could get started farming," chief deputy assessor Becker said. "Then, we had the big collapse and that stopped."

Also, Becker said, while tongues were wagging over farmland selling for over $4,000 per acre last summer in Mower County, more recently farmland sold for $5,200 per acre in Goodhue County.

"If somebody were going to sell their farmland in Mower County today, I'm sure they wouldn't take less than $3,000 per acre," Becker observed.

Queensland remembers when farmland sold for $500 to $700 per acre and Hollerud remembers $1,100 per acre prices.

Another generation of real estate brokers will someday soon remember the "good old days," when farmland went for "only $2,000" an acre.

Becker refuses to make any predictions.

"I know it's like a roller coaster and there's going to be the day when it is going to crash," the chief deputy assessor said. "Our fathers and grandfathers keep telling us that; that it can't keep going up, but who knows? Is it going to be $4,000 an acre or $5,000 an acre before it falls?"

[Jeff W]

Don't be [censored] retarded. Farmland is not an appropriate investment for OP's bankroll or living expenses.

[Timosil]

DcifrThs:

Of course no one knows everything about investing (that is a given)...and I, like you, only want to learn more...knowledge is the only edge in investing. But the fact is: the OP never stated that he wouldn't accept a high level of risk/volatility...

If the Real Estate market takes a nose-dive do you not think the Fed Reserve will lower rates? Will the USD not drop further if this occurs? Do you really think it is the ideal time to invest in US REITs? You said that rates were headed up...if they do this will kill the Real Estate market.

Also I don't know that much about commodities...I assumed that parking money in them would result in a lower long term return than an S&P index. Also can you buy a commodity index? Are the trading costs high?

I think we just have divergent concepts of acceptable risk, and ideal investments...I would never invest in Bonds, I simply refuse to give up positive expected return for the sake of lower risk/volitility...I would rather put the money in a S&P index fund.....peace

[cmyr]

wait, the farmland wasn't a joke?


and yeah, that's not really what i'm looking for. I'm thinking more index fund vs. high yield savings vs. money market fund. Thanks barron et al. for the input, I think I'll stay with MMF/ term deposits for my liquid roll and start thinking more about long-term savings.

[TheMetetron]

I'm getting a little sick of DeciferThis's constant "you need to properly arrange your portfolio with bonds, commodities, equities, etc to achieve a higher sharpe ratio, but never telling anyone how this is possible outside of "leveraging"". Look, I'll admit whatever you constantly try to get people to do in this forum goes way over my head, but you never explain it at all. How exactly am I supposed to leverage bonds to get equal returns with stocks? I'm fairly sure that isn't allowed inside of a tax-sheltered account and if it is somehow available outside of one, it surely isn't something someone can do easily or without a crapton of money so why do you keep saying that in every thread??

[Sniper]

You should put together a basic financial plan. Some questions...

How often do find yourself depositing money into poker sites to replenish your onsite bankroll? and how much are you usually moving? In other words, have you allocated too much to readily available bankroll?

How much are you pulling out of poker in an avg month, and what are you doing with it? Are you just pulling out enough for expenses, or are you allocated some to your future? (you should be)

How much risk are you willing to accept with your money? When looking at this, you should also consider the risk you accept with in play poker funds.

[Nomad84]

[ QUOTE ]
I would never invest in Bonds, I simply refuse to give up positive expected return for the sake of lower risk/volitility...I would rather put the money in a S&P index fund.....peace

[/ QUOTE ]

I felt this way until recently. I recommend you read up on some of DcifrThs's recent posts. He has certainly changed my view of bonds and other asset classes and why you really do need them in your portfolio. The short version is that you can leverage lower risk asset classes to bring the risk and returns up to the level of stocks, but by holding a mix of different asset classes instead of just stocks, you can reduce your overall portfolio volatility without reducing the expected returns. In fact, if you don't care to reduce your volatility, you can use these same strategies to increase your returns without increasing your volatility. Basically, you can double (or at least close to double) your risk adjusted returns by using the strategies that DcifrThs suggests. His posts are solid gold...I think they'll change your mind about bonds.

[DcifrThs]

[ QUOTE ]
DcifrThs:

Of course no one knows everything about investing (that is a given)...and I, like you, only want to learn more...knowledge is the only edge in investing. But the fact is: the OP never stated that he wouldn't accept a high level of risk/volatility...

If the Real Estate market takes a nose-dive do you not think the Fed Reserve will lower rates? Will the USD not drop further if this occurs? Do you really think it is the ideal time to invest in US REITs? You said that rates were headed up...if they do this will kill the Real Estate market.

Also I don't know that much about commodities...I assumed that parking money in them would result in a lower long term return than an S&P index. Also can you buy a commodity index? Are the trading costs high?

I think we just have divergent concepts of acceptable risk, and ideal investments...I would never invest in Bonds, I simply refuse to give up positive expected return for the sake of lower risk/volitility...I would rather put the money in a S&P index fund.....peace

[/ QUOTE ]

another important concept i think you're missing is the separation of active management decisions (alpha) vs. passive asset allocation (beta).

you want to make those decisions independently. saying now isn't a good time to get into real estate falls into alpha.

creating an optimally allocated passive investment portfolio is beta. thats what i'm talking about now and for the OP. as such, sure if the fed lifts rates, REITs will underperform for some period of time. the assumption you must make to create this portfolio is that over time, risky assets out perform cash. this is the base of capatalism so overall it is a safe assumption. however, you'll note that when cash outperforms risky assets, the portfolio does poorly BUT NOWHERE NEAR AS POORLY AS A NON DIVERSIFIED PORTFOLIO!!! if you have an equity/bond portfolio vs. the close to optimal one i'm talking about and rates jump (which they won't, they tend to move up slowly) the equity heavy one will tank relative to the diversified one. the latter's downswings will be significantly less than the former's.

commodities provide exposure to (aka perform well in) high growth high inflation environments and perform less poorly in low growth high inflation environments.

they can easily be invested in via index funds with minimal costs.

in terms of your active management questions: the fed isn't concerned with the real estate market in and of itself. if growth does well despite a tanking RE market rates will not drop. if the lower RE market affects consumption & demand for goods that reduces GDP more than expected, then yes the fed will lower rates (which will then increase demand for real estate and risky assets in general).

if the fed lowers rates, the spot USD vs. its trading partners (assuming all else stays constant) will depreciate, yes. a good short/med term bet to have on now despite rate considerations is a long JPYvUSD one. it is near record lows and at some point, the fundamental economic flows into japan will overcome the speculative flows out of it, as tends to happen in carry trade type situations.

no i don't think this is a good time to choose to invest in REITs. if i were a long only manager, i'd likely be underweighting that allocation relative to others.

if rates head up it will hurt the real estate market. and it will hurt equities. and it will hurt bonds. who's to say which will be hurt the worst? you can't time markets in passive allocations and you shouldn't try to. having a diversified portfolio will help you perform better during times of rising rates than only investing in equities.

in terms of investing in bonds vs. equities, you are being closeminded again. you can use leverage to increase the risk of bonds (and thus their returns) to a level comparable with the S&P index fund. thus you can create the diversified portfolio without giving up ANY returns from investing in bonds. for somebody asking for help in choosing a career, you certainly speak in a tone that lands to readers as if you know what your'e talking about when it is very clear, at least to me, that you don't.

finally, if you re-read your initial response to my initial post, you'll see why i took the tone. "talk about a lack of understanding" etc. it's ok though, i accept your apology.

Barron

[DcifrThs]

[ QUOTE ]
I'm getting a little sick of DeciferThis's constant "you need to properly arrange your portfolio with bonds, commodities, equities, etc to achieve a higher sharpe ratio, but never telling anyone how this is possible outside of "leveraging"". Look, I'll admit whatever you constantly try to get people to do in this forum goes way over my head, but you never explain it at all. How exactly am I supposed to leverage bonds to get equal returns with stocks? I'm fairly sure that isn't allowed inside of a tax-sheltered account and if it is somehow available outside of one, it surely isn't something someone can do easily or without a crapton of money so why do you keep saying that in every thread??

[/ QUOTE ]

because it bears repeating, every time.

you can get leveraged index funds.

NONE of this can be done (leverage wise as far as i know) within tax sheltered accounts. you need to have money to do it. but people with money tend to overallocate to equities & bonds in a 60/40 type mix. this goes for institutions, wealthy indivuduals etc. but within 401k type accounts, you CAN diversify. i used to work for the Govt so my TSP account is basically all stocks & bonds since last i checked thats all i could do. each employer has different available allocations. i mentioned before that i have an equity heavy close to optimal portfolio allocation that i left at work that i'm waiting for my former employer to send me & give me the OK to distribute. i promise to post it ASAP so that you can acheive the diversification & come close to not sacrificing any returns while reducing risk drastically.

WITHOUT leverage, it is STILL possible to create a portfolio like the ones i drone on and on about. you just have to be creative and it has other risks inherent in it. for instance, instead of leveraging a 10yr 2:1, you can move out the yield curve to 30yr and increase duration. thus, your interest rate sensitivity will increase (though not by 2:1 but enough to give you a boost in returns). the risk here is yield curve risk. a 2:1 lev'd 10yr will do great if the mid section of the yield curve drops while the far end remains constant. thats a risk there.

you can't deleverage either in 401k accounts (again as far as i know but i'm no expert here). so you're stuck with the package. overall though you can do better over time even in tax sheltered accounts.

i'm sorry that i've neglected to stress that to actually create the product (i'll just call it that i guess) i'm talking about, you have to have access to the money now and it is not tax sheltered & takes some skill to create and manage. but it will reward you over time. if you don't care about that then you can simply put as much as you can in tax sheltered accounts w/ a diversified mix and be happy. or you can put it all in stocks and pray. whatever floats your boat.

i'm just trying to break the glass box that many investors live in since i've been lucky enough to be exposed to some top notch minds. if i tend to drone on and on in every thread about it, dont' you think there's a reason? obviously i believe in it and as skeptical as i tend to be, it is probably worth at least considering. im just tryin to spread the wealth so to speak.

sorry if i rubbed you the wrong way by not explaining those differences.

if you have any further questions, ask and i'll do my best to answer.

thanks,
Barron

[Timosil]

"...just read timosil's post about his situation. his lack of understanding at least now makes sense."

This is what I was refering to with my "...talk about lack of understanding" comment...so you started it! lol...honestly it was just tongue-in-cheek...I really don't care.

You sound like you have a better technical understanding of investing than I do...however I am spectical that your super-diversified REIT/bond/stock portfolio would turn a higher profit than a growth focused equity portfolio (given 30 years).

I am interested in "leveraging bonds" to get a higher return...why not just leverage equities via options (assuming willing to take on high risk)??? How does one leverage bonds?

I do favor active management of investments...like Lynch I look for things in my everyday life that could translate into profitable investments...for example I have recently knoticed that Abercrombie&Fitches target consumer base is ageing...once at a certain age they will likely grow out of their A&F phase...at that point they will have to indoctrinate/brainwash a new generation into the A&F fold...the likelyness of this successfully happening under the same A&F branding is slim...the style will be "played out"....this is the nature of fashion...maybe they will buy other brands, who knows, however the fashion cycle will slap A&F in the face...THUS I am going to short the $#it out of ANF...

The same thinking lead me to short siri...and is leading me to invest long in uranium...I believe that this type (alpha) of investing can potentially yeild the highest returns. There are many roads to high returns...

I don't intend to take a "tone" of expertise...I am just putting my ideas out onto the marketplace of ideas...I have nothing against you DcifrThs...I don't even know you, however you make negative assumptions about me in every post (lacking understanding, not being well read, taking tones...) .

That being said I am interested in your theory of the Yen being artifically weak...do you have any thoughts on how to best leverage the descrepancy between its current and true value?

Also have you worked for an investment firm? Where did you aquire your knowledge of leverageing bonds?

Oh and I accept your apology!
peace