I write about timberland and
investments every few months because I truly believe they are a
great long-term investment.
According to a 2011 report published by
Bank of America
has produced annual returns that have often matched or
outpaced the S&P 500 Index over the long term but with
notably less risk. Between 1991 and 2010, for instance,
timberland's average annual return was 11.16%, versus the index's
Even during bear markets in timber prices, timberland continues
to grow - literally - in value. That's because healthy trees grow
between 4% and 6%, regardless of what happens to the economy or
the stock market at large. And trees grow with little investment,
upkeep or expense.
I'd write about timber more often, but I know it's boring, and
honestly, it's a difficult asset class to get exposure to for
So we already know that timberland is better than the stock
market as a long-term investment. But how does it stack up
against another commodity - like
Timberland gained an average of 11.16% annually between 1991
and 2010. Gold only averaged 7% gains annually during that same
But that's somewhat of an unfair comparison. Gold and timber
fulfill vastly different market needs. You don't buy gold for
growth. You want to own gold to protect the value of your savings
from government inflation or currency crisis.
You own timberland as a long-term investment - betting on the
growth of trees and the necessity of timber products in the
It's a point I make frequently: an investment is different
than a liquid and safe cash position. You don't expect cash to do
anything except hold its value - so gold is just a superior form
of cash than most other forms.
An investment returns capital to you - creating cash.
There are a few timberland real estate investment trusts
(REITs) - and they pay pretty healthy dividends, but they're by
no means a pure play on timberland.
Ideally, you want to own timberland outright. If you live
pretty much anywhere in the lower 48 states outside of major
cities and prairie, it's likely that you're not far from
I recently spoke with a former appraiser for one of the
world's biggest timberland companies,
His job was simple: to decide whether a tract of land was best
suited for timberland - or not.
If it was best suited, then he might go in and look at the
type of trees and maybe the age and density of trees. But his
major concern was the best use for the land.
Obviously, the best use of land mostly has to do with
location. If it's next to a major interstate and outside of a
heavily populated area, a piece of land may not be best used as
But if a piece of land is remote, not too swampy, not too
hilly and already has a good amount of healthy trees on it -
you're probably looking at timberland as its best use.
If you're not in the market for buying timberland, I'd suggest
waiting until timberland REITs like Weyerhauser get cheaper.
Another two to look into are
Potlatch Timber (Nasdaq: PCH)
Plum Creek Timber (
I'd lean towards Plum Creek out of the three, as it tends to
have the higher yield. Unfortunately, all three of these
companies are expensive right now. Wait for them to come back to
earth during a market correction. Put them on your shopping list
and be patient.
If you're comfortable doing so, consider selling puts on these
companies at a price you'd like to pay.