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Timberland good buy not goodbye

According to a 2011 report published by Bank of America (BAC) timberland has produced annual returns that have often matched or outpaced the S&P 500 Index over the long term but with notably less risk. Source: Nasdaq

Between 1991 and 2010 timberland’s average annual return was 11.16% versus the index’s 9.03%.

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.

Timberland is better than the stock market as a long-term investment. But how does it stack up against another commodity – like gold?

Timberland gained an average of 11.16% annually between 1991 and 2010. Gold only averaged 7% gains annually during that same period. 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 global economy.

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 [of the USA] outside of major cities and prairie, it’s likely that you’re not far from timberland.

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.