nvestment objectives are as varied as investors themselves with some looking for short-term gains, while others are looking for long-term growth and yet another segment seeking a steady stream of income from their investments. Wouldn't it be great to have an investment that not only increased in value but also grew physically as you held it? Imagine purchasing a troy ounce of gold on January 3, 2008 for $288.50 and watching it value increase 183% to the recent $816.3 per ounce. Now imagine how thrilling it would be to have that one ounce of gold become two ounces while you were holding it. Timber is one such investment that can not only increase in value but can also physically grow as you are holding it. The kicker is that you also get a green investment as many timber companies harvest planted trees as opposed to harvesting old-growth trees, hence preserving timberland.
We discussed the importance of asset allocation in the October investment newsletter and I figured it would be a good idea to expand upon that theme and discuss timber as an asset class in this newsletter. Here are some of the reasons to consider timber as an asset class for your portfolio,
- Timber has had an outstanding record as an asset class returning 14.5% a year between 1972 and 2006, outperforming all other major asset classes like stocks and bonds.
- Real prices of timber have always risen over a 100 year period outperforming nearly all other commodities as supply is limited (unlike oil, there are no new discoveries of timber), while demand is robust for construction and in use for paper products.
- Timber prices are usually less volatile than stocks and timber as an asset class is not correlated with stocks.
- North American forests grow at 8% a year and as tress get larger their value increases as well. Hence timber not only grows as an asset class, the growth is value added.
- If prices fall, timber companies can defer harvesting until a later date.
