The Basics of Timberland Investing

• Timberland investment is literal investment in timber, specifically areas of timber in the U.S. While many investors do not consider investing in natural resources such as timber, there is a market for it. Investment in timber can help balance out many kinds of mutual funds, and often performs well because of its disassociation with the rest of the market. If you already have a number of active investments, you may want to consider expanding into timber as well.

Sources

• There are two basic sources of timber investment. One is from natural forests that are harvested for wood and processed in mills. The other is for tree farms that grow trees specifically for timber or for other purposes. Timber securities are typically available for one of the three specific areas in the United States: Southern timber, timber in the Pacific Northwest and timber in the Northeast. Each market operates differently and sees different returns.

Indexes

• The primary difficulty with timber investment was once the absence of standards and benchmarks. Timberland does not actively trade on organized exchanges and does not have publicly monitored prices like stocks and bonds do. In the 1980s, the National Council of Real Estate Investment Fiduciaries created a Timberland index that now fills in much of the needed information for timber investment.

Reliable Appreciation

• Timberland investment does not correlate exactly with the rest of the market. In fact, as a natural resource it often has an inverted correlation to stocks and bonds. When these securities do poorly, timberland tends to do better. This is what makes timber such an ideal investment for portfolios -- it can offset some of the loss associated with more traditional funds.

Risks

• Timberland investment also comes with its own set of risks. It is dependent on the proper use and cultivation of forests, and companies have different standards regarding this issue. Timber is also subject a variety of natural disasters and similar events which can affect security values when stocks and bonds remain relatively unaffected.