Many of you own stocks, whether individual stocks or as mutual or index funds, and likely own farmland if you’re receiving this newsletter. Do you prefer one over the other? Do members of your family believe one is hands down better than the other?
Let’s take a look at the long view.
Stocks… are certainly having their heyday. Some quick research using claude.ai shows a gain over the past year of more than 25% on the S&P 500, 22% on the Dow Jones, and 36% on the tech-heavy NASDAQ.
Going back two or three years is even more impressive. NASDAQ roars out there with a 48% gain in two years and 97% over three years. However, going back five years shows “only” 69% for NASDAQ. The S&P is no slouch at 37% and 73% gain over the past 2-3 years but again falls back to 57% over five years.
Over a 25-year period which includes dividends, the S&P has returned 9.9% annually, Dow Jones 9.2%, and NASDAQ 11.6%. Thanks for your quick work, claude.ai.
Farmland… remains a steady performer. It has its heyday from time to time as well. Most recently, 2021/22 saw land values gain 51% (per ISU survey) but have remained essentially flat since that time. Since returns revert to the mean over time, land values would either need to fall back or remain steady for a while. We prefer steady.
Going back to 2000, the ISU average for the state was $1,857 per acre. The average in 2025 was $11,549. That’s an annual gain of 7.58%. Adding annual income pushes the return to more than 10%.
Which is better?
An interesting and perhaps more realistic way to consider investment returns over time is to consider the Compound Annual Growth Rate (CAGR). This calculation considers the impact of downturns and recovery periods.
For example, if you have $100 and lose $50, you need to double your $50 to get back to your original $100. That requires a 100% return to maintain steady. NASDAQ has averaged 11.1% over the past five years and 11.0% over the past 25 years.
How about that! Now for the comparison. Like a wayward employee, I had to steer claude.ai onto the right track. “It” didn’t compare identical time frames the first time. This change made an interesting difference and actually favored NASDAQ since the second attempt excluded the early 2000 crash.
However, farmland says bring it on! Claude.ai says NASDAQ’s CAGR has been 8.9% while farmland’s CAGR has been 10.7%. NASDAQ appreciated at 8.2% versus 7.58% for farmland, but the cash returns calculated into CAGR boosted farmland… ol’ reliable! This is after including a 15% expense ratio against the cash rent income.
Think the past 25 years is some sort of aberration? I asked claude.ai to compare Iowa farmland with the S&P 500 over the past 100 years. Claude provided a CAGR of 10.4% on S&P with a high degree of confidence in that calculation. It calculated Iowa farmland at 9-9.5% with a lower degree of confidence due to estimations made over that time frame.
Real-life comparison
We have a client who requests an annual comparison between their land returns with the overall S&P 500. Figuring their returns since 2003, the CAGR on their cashrented farmland is 10.83% while the S&P has returned 10.9% if dividends were reinvested, and 9.0% if dividends were not reinvested.
Conclusion
This may not change your mind regarding which you prefer as an investment. Hopefully it adds to your perspective on the long run. Both are good investments and will most likely remain so. Farmland suffers less volatility than the stock market. It may seem less competitive at times, but those occasional big downturns in the stock market can be gutwrenching. Your own risk-reward preference is a key part of your answer.
By the way, claude.ai contributed some of the research and calculations in this article. While ai seems scary in the big picture, it can be extremely useful and time efficient. Instead of a simple search, ai can be like pushing your smartest friend to provide you with information.
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