Trees are slow growing, not very exciting but indispensable to the environment. Surely, we have had enough of the stock market, mortgage-backed securities, credit default swaps, collateralised debt obligations, futures, forex and hedge funds?
It is a mistake to ignore timber investments as a significant part of any investment portfolio. It is a stable area for diversification and dare it be said; money can grow on trees. Consider the following 3 points when reviewing your nest eggs.
Wood products are everywhere. Demand is consistently rising, and investment in the basic raw materials will hedge against inflation.
Between 1997 and 2017, the yields on timber investments have been on average 155%. Compare that to Standard & Poor’s top 500 stocks at less than 10%.
Furthermore, the Great Depression saw stock market falls of up to 90% while the US timber index actually rose in value by 233%. (These statistics are from the National Council of Real Estate Fiduciaries or NCREIF).
There are three ways to go when getting into timber investments. Firstly, do your own research and go it alone in buying into the asset class through timber and timber-related products. Think of owning your own forest, paper and construction capital goods. The second is to deal through companies that specialise in the timber class. The third is to buy into a nest egg exchange-traded fund that contains all or mostly timber based stocks.
The second and third alternatives above are of course stock exchange options and are more likely to suffer from the NYSE fluctuations also mentioned above.
So timber and wood products are definitely worth investigating as a direct investment. It is surely more reliable, genuine and secure than putting your savings into the secondary level of the ‘house of cards known as the stock exchange. Even timber companies ride the roller coaster while the trees themselves grow ever upwards majestically above the human fray. As an investor there is always the option to allow your assets to continue growing until the price is just right. With this comes peace of mind.
Pine forests are good class of timber investment and definitely the more traditional alternative. But pine is a softwood and hardwood makes for an even better investment. Search the investment press for opportunities in timber products in tropical growing areas such as Costa Rica or Sri Lanka. Yes, they can be politically unstable but when peace comes the things, they have been fighting for are still growing and in demand. For the more nervous investor, there is a very good scheme for hardwood in Germany.
It is always wise when investing for stable growth to have a whole range of different opportunities in your portfolio. So timber all the way is not the wisest course, but it is well worth considering for stability and diversification reasons.