Investing in timberland can provide attractive long-term returns. As trees grow over decades, the value of the timber harvested and the land itself tends to steadily appreciate. Compared to stocks and bonds, timberland returns have historically had lower volatility and low correlation, making timberland an appealing diversifier. When buying timberland, investors should consider factors like location, tree species, when timber will reach harvest age, risks from wildfires or pests, and whether to manage the land directly or through a fund.
Timberland offers returns from harvesting trees over long time horizons
Timberland can generate cash flows every few decades from harvesting and selling trees. Depending on the species, trees may be ready for harvest from as soon as 15 years for fast growing pine to over 50 years for slower growing hardwoods. So timberland suits investors with long time horizons who do not need immediate returns. Predictable growth rates and timber prices make estimating future harvest revenues possible. And as each harvest represents such a small portion of the land’s overall value, harvest revenues tend to be stable over time.
In addition to harvest revenue, land values also tend to appreciate over decades
The value of timberland as an investment comes not just from harvesting trees, but steady appreciation in the land’s value itself. As nearby areas become more developed over decades, even remote timberland increases in value due to rising demand. Restrictions on developing certain timberlands also reduce supply over time. However, land value gains may require decades to materialize.
Timberland returns have been stable and largely uncorrelated to stocks and bonds
A key appeal of timberland is its historical returns have had low volatility and low correlation with major assets like stocks and bonds. This makes timberland an excellent portfolio diversifier for reducing overall risk. While some timberland is sensitive to broader economic cycles that also affect stocks and bonds, much timberland pricing dynamics are very localized.
Investors can buy timberland directly or access it through funds
Owning timberland directly provides the most control and highest potential returns but requires substantial capital and expertise. For most individual investors, professionally managed timberland funds provide easier access by pooling capital. These take care of tasks like valuing land, estimating harvest revenues, finding buyers, and handling legal and regulatory issues. Funds also provide greater diversification across geography and tree species.
With predictable harvest revenue and land value appreciation over decades, timberland offers stable returns largely uncorrelated to stocks and bonds. Investors should consider their time horizon, risk tolerance, and direct management capabilities when assessing buying timberland.