Timber and forestry investment may seem to be extremely alien or dull to many investors. Most of the investors prefer to follow the crowd and put their money in hot investing options like stocks. However, investors who are really looking for stable returns and diversification should consider timber investments.

Timber, as an investment, can bring significant value to the portfolio of an investor. Asset management companies, such as Ethical Forestry. state that timber yields returns that surpass the returns yielded by traditional investments like stocks and shares. Moreover, the investment can be planned in a sustainable and environmentally-friendly manner.

Why are timber investments attractive?

• Being a hard and tangible asset, timber investment serves as a great hedge against inflation.

• The investment has resulted in impressive returns. As stated by the “National Council of Real Estate Fiduciaries (NCREIF)”, in the United States, timber returns during the period of 1987 to 2010 were 15% on an average annually. Whereas, the S&P 500, which is the major US stock index, was 9.1% per year only. Moreover, over the past 100 years, harvested timber price has increased by 5% per year on an average.

• Timbre investments deliver a good performance even when stocks are not doing well. For examp0le, in the year 2008, stocks lost around 40 to 50%. On the other hand, the main timebr4 index of NCREIF increased by 9.5%. As another example, at the time of the Great Depression, the stocks fell by 70 to 90%, whereas the main timber index rose by 233%. The returns yielded by timber and forestry investments have no correlation with those yielded by bonds and stocks. This indicates that timber investments offers true diversification to an investor’s portfolio.

Timber Investments are Sustainable:

Deforestation has become one of the most serious problems the world is facing today. The loss of the tropical forests is a real tragedy. Scientists say that almost half of the planet’s species live in the tropical forests. There are many such species living in these forests that have not been discovered yet. The forests hold large amounts of carbon dioxide. Hence, on cutting them, the entire amount of carbon dioxide is released in the atmosphere. This gas serves as a greenhouse gas, after being released.

Timbre is being driven by a huge and ever-increasing demand. The global use of lumber is likely to double within the next 30 years from now. However, this huge demand is leading to severe degradation of the environment.

The question that strikes the minds when talking about timber and forestry investments is that- Can such investments affect the environment adversely? Fortunately, the answer to this question is no. forestry investments do not mean large scale forest destruction. Timber investments consist of specially designed plantations, where the tree stocks are carefully controlled. The growing trees are looked after carefully, and then the trees are harvested in a sustainable manner. During the harvests, no native forests or tropical trees are cut down. In this way, timber investments are entirely sustainable investments.

Ethical forestry can guide investors on their way to invest in timber. Such companies look after the trees owned by investors and send them the returns for their investments.

Unlike these asset classes, timber is a hard and tangible type of asset. Investing in timber is a long term investment and is associated with lower level of risks. Timber investments have caught the eye of investors who wish to enjoy attractive returns and also diversify their investor portfolio. Asset management companies like Ethical Forestry are encouraging investors to reap the benefits of timber investment.

Forestry is considered to be a good way of balancing the investment portfolio of an investor. Investors have been making money through timberland for more than 100 years. The performance of timber investment has outperformed other investing options like commodities, shares and property.

In the present era, people’s concern towards the high rate of deforestation has grown. Illegal logging has led to deforestation of vast forest areas. Once upon a time, forest area covered about 40% of earth’s surface, but now that percentage has come down to 13%. As people are gradually becoming environmentally aware, they are realizing the need of plantation of more trees. The need for reforestation and the ever increasing demand for timber have made timber investments quite profitable over the alternatives.

Reforestation:

In many Central and South American areas, emphasis is being laid on the plantation of new forests. Land that had been cleared for the purpose of grazing of cattle is being purchased and new forests are being replanted there. Forestry is usually considered to be an investment of long-term needing 20 to 25 years for reaching full maturity. However, genetic research has led to ways that can help to accelerate the growing process of trees. If such genetically modified seeds are planted in tropical conditions, the growth rate can be further improved. The rate of growth of trees in tropical climates is about 5 to 10 times greater than that in the temperate regions of US.

To an investor, this implies that the timeframe needed for maximizing the returns for forestry investment, can be cut down to around 16 years from 25 years. This reduction in the period of growth increases significantly the investment returns. It also makes the time period acceptable for investors of long-term.

Why to include Timber Investment in your Portfolio?

The reasons as to why you should consider investing in timber are as follows:

• Institutional investors are investing more than before in forestry. and particularly in teak. Their investment in timber in 1985 was a mere of $1 billion. In 2009, this figure rose to $65.
• Major providers of pension have begun allocating assets to forestry as a part of their strategy for diversification of portfolio. Credit Suisse analyzed it and found that the returns in this period were in the range of 14% to 15%.
• Research consultants of alternative investments consider forestry investment as a profitable asset class to invest for institutional investments.
• Timber investments are associated with very modest risk levels, as compared to alternative investment options. Forestry investments are not easily affected by economic downturns and uncertainties.
• The investors investing in timber are also provided with various kind of protection. Asset management companies like Ethical Forestry. take the responsibility of managing your investment. In case your trees are affected by any environmental factors like fire, pests and insects in a certain time span, you would be provided with other trees or some alternative, aimed at minimizing your loss.