Not everyone is a fan of massive government spending.
Sen. Mitt Romney (R-Utah), for instance, told Fox News late last year that the Democrats were “pretty desperate” to pass President Joe Biden’s multi-trillion-dollar spending bill.
Even back then, Romney worried that inflation could rise to unmanageable levels.
But when it comes to government spending, the question on many investors’ minds is a simple one: “How do I make money from it?”
And in that context, Romney had some interesting things to say.
After all, Romney made much of his fortune through private equity firm Bain Capital, whose funds own shares in companies like Amazon and Alphabet.
But he didn’t mention tech stocks.
Instead, Romney talked about how Biden’s proposed tax on billionaires — to help pay for trillions in spending — would boost demand for two specific asset classes: fine art and farms.
Romney mentioned paintings, which might be a little tough to understand.
Companies make profits. Farmland produces crops. But what can fine art deliver?
Well, it provides the one thing that matters most to investors: market-thumping returns.
Contemporary artwork has already outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.
Artwork has become an increasingly popular way for investors to diversify because it's a "real" physical asset with very little correlation to the stock market — much like precious metals and real estate.
In fact, the correlation factor between contemporary art and the S&P 500 was just -0.08 over the past 25 years. In other words, art zigs when stocks zag.
Earlier this year, Bank of America’s investment chief Michael Harnett even singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.
Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultra-rich, like Romney. But with a new platform called Masterworks, you can invest in iconic artworks, too, just like Jeff Bezos and Bill Gates do.
It’s no secret that the ultra-wealthy love farms.
Bill Gates — the fourth richest person in the world, with a net worth of $123 billion — is the largest private farmland owner in the U.S.
And Romney expects more fat-cats to plow into the space.
“These multibillionaires are gonna look and say, ‘I don’t want to invest in the stock market, because as that goes up, I gotta get taxed,” Romney said.
“So maybe I will instead invest in a ranch or in paintings or things that don’t build jobs and create a stronger economy.”
It’s easy to see the appeal of farmland: It is intrinsically valuable and has little correlation with the ups and downs of the stock market.
And even in a hyperinflationary environment, people still need to eat.
Between 1992 and 2020, farmland returned an average of 11% per year. Over the same time frame, the S&P 500 returned only 8%.
These days, you don’t need to be a multibillionaire to get a piece of the action. Investors can gain exposure to farmland through publicly traded real estate investment trusts like Farmland Partners and Gladstone Land Corporation.
Plus, there are also new platforms like FarmTogether that allow you to invest in U.S. farmland by taking a stake in the farm of your choice. You’ll earn cash income from the leasing fees and crop sales. And of course, you’ll benefit from any long-term appreciation on top of that.
The bottom line
Whether you agree with Romney or not on artwork and farmland, inflation is happening.
The prices of numerous goods and services have exploded over the past year. Meanwhile, the labor shortage could make things even worse.
For savers, it could lead to the serious deterioration of purchasing power.
So invest wisely.