Timber can be a great investment on its own as well as an important diversification in your portfolio. Timber is not correlated with stocks and bonds and is positively correlated with inflation. This means that when stock and bond markets move it has no effect on the investment returns of timber. Also as inflation increases, it makes the cost of lumber higher increasing returns where inflation typically is bad for the investment returns of stocks and bonds. Timber investments have had a high rate of return with less risk than stocks.

Over the last 40 years timber investments have returned 13.3% versus an 11.6% return for the S&P 500 index over the same time frame (Timber!, Smart Money, October 11, 2001). Not only has timber had a good return, but it has done so with less volatility, a common measure of risk. Low volatility in timber is due to two reasons; one, timber organically grows (a tree gets bigger every year), and two, timber prices have been steady and rising over the last 40 years. In fact the price of timber has historically risen 3.3% over the rate of inflation (The Investment U e-Letter: Issue # 401, Friday, January 7, 2005).

The future looks bright for timber. The demand for timber is not going away; just look around you. You are probably sitting at a table made from wood in a wooden chair, writing on a piece of paper made from wood, in a room with wood trim and wood floors in a house framed with wood. Currently every American consumes the equivalent of a 100 ft. tree every year. The population of the world and the United States will continue to grow creating even more demand for timber.

Using Timber to Shelter Your Money - Smart Money Magazine - Septmber 27, 2011

25 Stock Picks from 25 great Investors - Money Magazine

Timber Investments Cut Down Portfolio Risk - Investopedia - October 30, 2008

Timber: the Ulimate Growth Investment - MoneyWeek - October 18, 2007