A timberland investment brings stability and diversification to a portfolio of various assets.  Investing in timberland is generally safe because unlike the swings of stock markets, timberland prices tend to be consistent and steady.

Timberland investors have two opportunities to make money from a timberland investment, which include -

1. The real (excluding inflation) increase in prices in delivered forest products.  Marketing to take advantage of "spot market" prices can add exponentially to real price increases.
2. The growth of the timber itself.  Land that has merchantable timber can produce a significant cash flow, especially if land is managed well.  In the Southeastern US, the average tract will grow 3-7% annually depending on the timber types and the age class distribution.

The rationale behind investing in timber includes the following: 

• Provides portfolio diversification
• Provides high returns at relatively low risk
• Has a low to negative correlation to other investments
• Growth is predictable
• Provides an inflation hedge - timberland value correlates highly with inflation and is therefore an effective investment for preserving capital. It has outperformed other commodities in both high and low inflationary environments.
• Constant growth.  The continual tree growth magnifies timber price increases and reduces the impact of cyclical timber price declines.

Timberland Investing In the Last Ten Years (2001 – 2011)

A study was conducted (by Thomas G. Harris and Sara Baldwin of Timber Mart-South and Justin Wright and Jacek Siry of The Warnell School of Forestry and Natural Resources) on the performance of timber investments compared to stocks over the last 10 years (2001 -2011).  Their calculations proved that “Even with a delayed housing market recovery and mature pulp market that will not be expanding exponentially, timber can be a dependable investment.”  Specific findings included:

• Wood Basket Product Prices beat the Dow Jones Industrial Average on both price and value of the investment.
• On an individual product basis, pulpwood products were big winners, benefitting from price appreciation and biological growth.
• Hardwood products also beat the Dow Jones Industrial Average in spite of their slower growth rate.
• Oak was a bit of a surprise, showing that even a tiny price appreciation can bring strong return if the dividend is as much as 2.5%.

For anyone looking to diversify assets, a timberland investment has been proven to provide positive returns.  Contact Milliken Forestry for a more in-depth explanation of the benefits of investing in timberland.