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Todays Financial Markets Are Ever Changing (sponsored contribution)

Published on 25/11/2008

Why relaxed? Although money does not grow on tress, these investors have joined many others in recent years that have invested in Timberlands and forestry plantations and seen returns from 6 to 12% per annum.

Why would one look to invest in timberland or a forestry fund investing for buying property for growing trees? The benefits to the investor are numerous. By investing in an asset-backed fund owning the physical property, there is less risk or losing all of the original investment (land has a value and will never go to zero!). By purchasing land, there will be less liquidity in the fund as to generate money the sale of timber or land may take time.

When forestry asset managers actively mange the forestry land and promote the best standards to produce better conditions for growing and harvesting trees, this improves the quality of wood and adds more value when selling the timber.

Another benefit to the investors is that trees are always growing and if timber prices fall, the tree does not have to be cut and will continue grow and still become more valuable then it is today. This ‘storage on the stump’ benefit is there when there are turbulent times in the financial markets. Whether there is a recession or inflation trees continues to grow and become more valuable. This also leads to predictable returns as investors will realize a minimum return if trees are cut early and have higher returns as the trees mature.

A few funds diversify globally between different locations for land acquisition and plantation management. Each acquisition will also offer diversifying between tree species as well as the age of the mature plantations versus new plantations in order to provide consistent returns each year from the entire portfolio.

Timberland and forestry lands acquired offer the opportunity to participate in socially responsible investing. Investors support the reforestation of trees in areas where deforestation have had a negative impact on the local environment and economy. Reforestation and conservation provides jobs to local communities and reinstates natural habitats for wildlife and agriculture.

As forestry is a renewable resource, investors also contribute towards the generation of bio-fuels and supporting carbon credits to improve the local air quality and potentially supply other investment options from forestry lands through carbon credits for businesses to purchase.

Timberland and forestry investments are a medium to long-term investment as it takes a long time for trees to grow before they are harvested for their full value. Actively managing forestry provides income from seasonal cuttings to improve the health and quality of the trees in the plantation.

Land and timber prices may limit returns of a fund if the land acquired it purchased at too high of a price and is of poor quality. Cutting trees and selling them when prices are decreasing will lead to further reduction in investment returns.

In summary, investors should look for forestry funds that acquire timberland and actively manage the forests. The fund?s strategy should include diversification between locations, tree species and plantation maturity to limit risk and also offer opportunities for higher returns.