The Basics of Investing in Timber

Before considering investing your money in forests and trees, there are some basic concepts which are important to understand. There is a vast demand for timber and wood across the world, and natural forests are being felled at an alarming rate in order to keep up with this demand. It seems that more trees are being taken down than are being planted.

Therefore, the forests that are homes to these trees need to be replenished and maintained regularly to ensure that they grow sustainably. When making investments in trees, another of the basics of forestry investments that is worth noting, is that timber investments have been in existence for many hundreds of years. They started with the formation of the Dutch East India Trading Company which used timber for building and repair of ships. Back then, they grew most of their trees on tropical timber plantations.

Since that time, the timber and logging industry has developed and has utilised various improved cultivating techniques to increase the volume of timber that's produced. Now, it is not limited to tropical timber plantations but sources from other commercial endeavors too.

There are many ways to approach investing in trees, and this is something else that should be taken into consideration.

Often a forestry investment is looked at as private equity as the purchase of commercial timberland can be made through private-equity investments, which are managed and structured by a TIMO or timberland investment management organisation.

A forestry investment can also be viewed as the purchase of a long-term bond. The harvest and sale of timber in a mature forest will generate cash every year. These harvests are relatively predictable over time. Furthermore, they're not usually effected by changes in the financial markets. As such, forestry investments can be structured in such a way that they look like and behave like long-term bonds.

The forestry investment can be regarded as an investment in real estate. Although land is being purchased where the forest resides, the income from this land is derived from the sale of timber over a periodic basis in contrast to leases or rents.

Trends in the timber investment market seem to point to one of the basics of forestry investment. This is that it carries low-risk and returns more than other types of investments. It also has a high degree of protection from inflation.

Returns on forestry investments have been greater than those from conventional markets such as gold, bonds and real estate and stock indices such as the S&P 500, Dow Jones, the Nikkei and the FTSE, consistently over the past one hundred years.

Timber prices have gone up in three out of the four major collapses in the market in the 20th century. Forestry investments also seem impervious to terrorist threats, Internet bubbles and bursting and other worldwide events that typically cause drastic changes to the stock markets.

With timber in such great demand across the world for many purposes, purchasing forests for investment purposes is a wise choice, and one should be well-informed about this investment before taking the plunge.