Timberland Investment

An investment instrument used primarily by large institutional investors (such as public and private pension funds). The two main assets that underlie timberland investments are tree farms and managed natural forests. The returns on these forestland investments come from biological growth, upward product class movement, timber price appreciation and land price appreciation.

The benefits of timberland investments arise from the tendency for the investments to be negatively correlated with other investment instruments such as stocks and bonds. This negative correlation allows timberlands to be used to diversify a portfolio. Timberland investments also provide relatively high returns for the low risk they carry.

However, timberland investments are not perfect investments; they are still open to risks such as high purchase prices that can depress returns, natural disasters that can destroy the forestland underlying the investment and price risks associated with the price of the trees on the land.