Should Timber Investments Be Part of Your Portfolio?
Written by Grant Glessing
Timber and timberland have traditionally been investment vehicles for institutional investors because of the amount of capital required. There are however, excellent opportunities in today’s timber and timberland investment marketplace for small retail investors. These investments provide individuals with the benefits of a diversified portfolio, as well as opportunities to invest in some of the higher yield precious woods that may be too small and specialized for large institutional investors. In this article I will address some of the most frequently asked questions about timber and timberland investments and describe the benefits these investments offer individual investors.
What are the benefits of investing in timber?
Return on Investment: Timber has outperformed all major stock markets over the past 25 years with an average annual return of 15% as measured by the National Council of Real Estate Investment Fiduciaries (NCREIF). The timberland index ranks timber first in growth, as $100 invested in timber in January 1987 would have grown to $2,190 by December 2008.
Inflation Protection: Timberland has historically provided good protection in times of inflation. It is widely recognized as one of the best ways to protect wealth in times of economic turbulence. Uncorrelated to Other Assets: Timberland investments tend to move counter-cyclically with stocks and bonds. This allows the investor to offset risk while at the same time providing portfolio diversification, especially during times of extreme market volatility.
Environmental Benefits: Responsibly managed timberland is a green investment, providing many environmental benefits such as carbon sequestration, watershed protection, and animal habitat for the socially responsible investor.
What are the risks?
Physical Risks – Although catastrophic events such as fire, pest infestations, and violent storms often get a great deal of media coverage, they actually account for a very low percentage of timberland losses. As with any investment vehicle individual investors should understand the physical risks and uncertainties associated with the particular timberland investments they are considering.
Liquidity – Timber is not an investment to be flipped for a quick return. It is best suited for the focused long-term investors who does not need ready access to their capital.
[BLOGGER NOTE: TheUnDeveloper is an advisor to private equity groups made up of high net worth investors that purchase and operate joint ventures on institutional grade timberland plantations greater than 10,000 acres.]
