Investors throughout the world have flocked to timber investments over the past decade. The primary reason why these investments are so popular is that the timber industry has evolved in the 21st century. The days of a company handling everything from extraction to sales has been replaced with an era of full management. Timber management organizations bring order to the industry by handling planting, extraction and delivery more efficiently than their clients. These organizations also know state, federal and international forestry laws to ensure that their clients don’t incur penalties. The efficiencies created by these type of management organizations make investing safer for all consumers.
Investing in trees is also worthwhile because it provides reliable returns. A foresters Society found in 2008 that every American consumer uses enough paper products to cover 100 feet of timber. Economists have found that the value of timber investments outpaced inflation by 3% per year from 1905-2005. Investors can also expect returns of 12.88% from timber investing compared to 10.54% from other investments on the S&P 500 based on a study between 1990 and 2007. The mixture of a reliable market for timber and higher returns compared to other stocks make these investments vital to a successful portfolio.
Investors of all experience levels have noticed that 401ks, pension funds and private equity funds now invest in timber. These funds carry timber investments due to the reliable maturation period of forestry yields. Soft and hardwood trees require 15 to 30 years to fully mature, which means that timber investments require longer views by investors. Based on the aforementioned study, demand looks to hold steady even as saplings turn into mature trees. These trees are replaced gradually by additional forests and new trees, which means that timber yields are staggered over time. Consumers directly investing in the timber industry can make investments at the beginning, middle and end of timber cultivation to keep dividends constant.
A final reason why investors are looking at the timber industry for investments for their portfolios is the appreciation of timber lands. In addition to investments in trees, individuals and fund managers are investing in the land where these trees grow. The constant demand for paper products, wood furniture and other timber products means that timber and timber lands are appreciating assets. Prospective investors convinced by these reasons for timber investments need to find the best financial vehicle for their needs.
The most typical method of timber investment is through a 401k (US) or pension fund. These funds are managed by professionals that choose stocks with reasonable chances of success. The least common form of timber investment is direct investment in a timber supplier, which requires millions of pounds and advanced knowledge of the timber industry. Investors can look for the S&P 500 and other stock markets worldwide for timber stocks with successful records. Forestry investors can also use exchange-traded funds (ETFs) to mix timber investments with high-risk stocks and earn dividends quickly. While ETFs have been criticized for being speculative in nature, these funds allow aggressive investors to hedge their bets on riskier stocks with the reliability of timber investments. New projects are coming onto the market currently and investors can buy into forest plantations directly with a company. These offer high returns with a moderate risk and can be effectively divideded up into parcels of land.