Forestry Investments – A Review of Timber Investments for Retail Investors

We all use timber on a daily basis, in our houses, our furniture, our floors and our roofing, and institutional investors, hedge funds and pension funds have been investing in timber as a long-term growth asset and inflation hedge for decades. However, as more investors discover the little-known fact that timber investments have generally outperformed stocks, bonds, and commodities over the long run, there are now many opportunities for the smaller investor to participate in this alternative asset class.

The demand for timber is growing in line with an ever-expanding population, as the human race multiplies in number we require more timber for construction, yet at the same time, fundamental limits to the supply of natural forests limit the amount of timber we can grow and harvest for our own use.

Deforestation has destroyed 1/5th of the world’s forests since 1950, and new global legislation is in place to protect the forests that remain as they play a vital role in carbon sequestration and the ecosystem.

This imbalance between supply and demand creates an outstanding opportunity for investors to acquire assets in short supply and profit from undeniable fundamental trends of population growth and resource scarcity.

Investment Performance

The vast majority of return on investment generated by timber is derived from the biological growth in size of the timber source, from seedling to sapling to fully fledged tree. On average, a single tree’s volume of wood will increase by between 2% and 8% every year depending on species, age and climate. On a very basic level, this gives the tree owner more timber to sell as time passes, and hence generates a greater return in the long-term.

Aside from this basic observation there is more to consider, as trees yield a greater sale price when they grow into bigger product classes. As an example, a small tree would only be suitable for paper products or biomass for fuel, where a larger tree can be harvested for sawn-timber which will fetch dramatically higher prices per tonne and can be used for products such as plywood or telephone poles.

A study by Professor John Caulfield of the University of Georgia found that biological growth counts for more than 60% of total financial returns, whilst increases in the price of timber, and capital appreciation of the land account for the remainder of returns generated from a timber plantation.

This goes to show that it is an effective strategy to lease land on which to grow timber, as well as purchase outright as only 6% of profits are derived from capital appreciation in the value of the land. This also shows that fluctuations in the price per cubic metre or tonne of timber have limited influence on the overall performance of timber investments. The majority of return is generated from the growth in the size of the tree itself.

The standard benchmark for timber is The NCREIF Timberland Index, which increased 18.4% in 2007, versus a 5.5% rise for the S&P 500. In the long-term, the Timberland Index has outperformed all major asset classes including, large-cap stocks, International equities and corporate bonds.

Whilst small-cap equities have outperformed timber in the long-term, after factoring in risk (as reflected in the Sharpe Ratio), timber has exhibited the highest risk-adjusted returns of any major asset class. When compared to the S&P 500, timber has displayed a low risk characteristic. Since its 1987 inception, the NCREIF Timberland Index has fallen in only one year: – 5.25% in 2001, at the same time, the S&P 500 has fallen four times, including -22.10% in 2002.

One of the main reasons investors, especially large institutional investors, turn to timber, is the fact that the asset displays low to zero correlation with other assets, especially those linked to financial markets. It has been demonstrated over a long period of time that adding timber to a portfolio of investments has the effect of improving overall risk-adjusted returns. This low correlation reflects the fact that the primary driver of returns-biological growth-is unaffected by economic cycles.

Institutional Investor in Timber

In 2007, Jeremy Grantham, Chairman of Grantham Mayo and Van Otterloo, a Boston-based firm that oversees $60bn in assets, predicted the impending financial crisis, one of very few Investment Managers to do so.

At a conference in June 2007 Mr. Grantham announced that equities were overpriced to such an extent that the market was as risky as he has ever seen it. “The next few calendar years,” he warned, “look like a black hole as overpriced markets, dangerous leverage and a gigantic hedge-fund business collide with the house-building phase of the US presidential cycle, plus the contraction phase of a long interest cycle.” His prediction? He said he could see the Standard & Poor’s index falling 38% over the next two years.

He went on to say that Investors should allocate capital to timber investments as a stable and predictable asset with a low risk profile where returns are generated outside of any market. It is the only asset class in existence that has gone up in three out of the four major market collapses of the 20th century. It should be noted that Jeremy Grantham holds 20% of his personal investment portfolio in timber assets.

Institutional investors have recognised the benefits of timber investments for some time, Pension funds such as Calpers, led the way in the 1980s, however it was the big university endowment funds such as Harvard and Yale that saw the true potential and invested heavily in a move to diversify their portfolios globally. In 2009 the Harvard Endowment Fund invested $500m in forestry and carbon credits in New Zealand.

PKA, the DKK 114bn (€15.4 bn) Danish collective pension scheme for employees in the public social and health sectors, raised its forestry investments to about €335m by the end of 2007, raising its commitment to timber from 1.5 to 2% of total assets.

ABP, the €211bn Dutch pension fund made its first timber investment in 2007 with a $60m (€40m) allocation to the Global Solidarity Forest Fund (GSFF), which will develop three sustainable forestry projects in the Republic of Mozambique, in south-eastern Africa, and Angola.

Both the £1.5bn (€2.1bn) UK Environment Agency pension fund, the £31bn Universities superannuation Scheme and the £3.6bn London Pension Fund Authority are reviewing whether to inject money into forestry investments.

European Investment Bank (EIB), the € 26.3bn Ilmarinen Mutual Pension Insurance Company and seven medium-sized Finnish pension funds have all invested in timber via the Dasos Timberland Fund.

Massachusetts Pension Reserves Investment Management Board (Mass PRIM) decided to make a $500 million timber investment just three years after selling a $700 million section of its timber portfolio.

More recently there has been a spate of new timber investment by major asset managers, not least the $1 billion takeover of Canadian timber business TimberWest by two large asset management firms acting on behalf of institutional pension funds.

At the time of writing this report in December 2010, there looms the prospect of a second round of quantitative easing (QE2) by both the US Federal reserve and possibly the Bank of England too.

QE2 should help to shore up the US housing market. Construction accounts for roughly 70% of the total value of timber resources and as the US property market recovers, inflation will rise as houses increase in price once more.

One such asset is timber which has a proven history as an excellent hedge against rising prices.

The US housing market (construction accounts for roughly 70% of the total value of timber resources and QE2 should help to sure up the US housing market. As the US property market recovers, inflation will rise. As house increase in price once more.

Timber as an asset class presents unique characteristics. The performance of forestry assets is driven primarily by the natural growth rate of trees independently from the macro economy. As a tree matures its size and usefulness increases and subsequently so does the price. In a difficult economic climate timber companies have no need to discount their crops because if simply left to grow the value of the asset only increases.

This makes timber much less volatile in the long run and more resilient in difficult times compared to most other commodities as the investment is backed by the underlying real asset value of timber. Timber is recognised as an inflation hedge as trees grow in size, and therefore value each year. If inflation were 3% and your trees grow in size (value) by 5%, you have grown your wealth in real terms ahead of inflation.

As the rate of inflation increases, so to do timber prices, as well as the volume of timber you have to sell. This creates a double-buffer for investors and makes timber investment an ideal balancing tool to diversify portfolios.

There are a number of different opportunities for retails investors to participate in timber investment in various forms. In this section we will focus on direct investment within commercial timber plantations, although the reader should be aware that there are other, market-linked opportunities such as forestry funds and listed timber companies.

The basic premise of all of the investment offerings from various companies that we have researched remains relatively static, in that investors are usually invited to purchase either a lease on a plot of land within a commercial timber plantation, therefore owning cropping rights to any timber produced within their plot or woodlot. An alternative to this is where investors are offered direct ownership of a fixed number of trees.

The cost for plots varies from project to project between £5,000 (GBP) to £22,500 (GBP) depending on the size, location and species of timber being grown.

Sometimes, annual fees are required from the investor to service the costs of on-site management, and of course the occasional thinning that is always required within a commercial plantation.

With other projects, sufficient management fees for the period of time up to the first harvest are paid up-front by the vendor and held in escrow, fees for future harvests are deducted from the revenue of each preceding harvest, therefore creating an investment where no further cash input is required from the investor.

With some projects the land is leased by the forestry company and investors enjoy a sub-lease, with others the land is owned outright by the forestry business and investors have a direct lease and the land held in trust in favour of investors until their lease expires, this mitigates the risk of the forestry business ceasing to trade in the future and the investor left with a sub-lease with a business that no longer exists.

Lay A Strong Investment Foundation Through A Stock Market Investing Guide

Thanks to the opportunities that exist in the online environment more individuals are beginning to take advantage of the unique resources available with stock market investing. While this unique opportunity for securing your own financial future may be highly appealing, one of the greatest mistakes individuals make concerning this opportunity is found with simply investing money with conducting no research or market evaluation. In order to help improve your opportunity to benefit from this online environment it would be ideal to take advantage of a stock market investing guide.

The first step to take when pursuing any stock market investing opportunity is to find a high quality platform that you can rely upon and make trades with. There are many platforms available for consumers to take advantage of so it is important to weigh your options when considering these resources. When trying to identify the best platform for you it is important to not only compare the various rates you will be charged for making trades but to also assess the resources they provide you in relation to stock tracking and conducting market research.

Once you have been able to identify the best platform to support your stock investing goals, the next step in a high quality stock market investing guide is to identify potential stocks you may be interested in and beginning the research process. Research represents an invaluable tool that investors rely upon to identify market trends, as well as determine the value associated with making an investment in a particular stock. Stock values are constantly fluctuating so it is important to identify what is impacting these businesses and how a change can benefit your investment goals.

Step three of the stock market investing guide is to weigh the value of every stock you are considering to invest in. The value associated with the stock is dependent upon many different factors such as the opportunity to profit off of your investment. While one stock may provide you with an opportunity to make a small profit while another stock may provide you with the opportunity to make a larger profit, it is also important to weigh the risks that may affect whether the stock will succeed. Often the safer opportunity will provide you with a smaller profit but will give you results rather than the risky endeavor of an alternative.

The final step of your high quality stock market investing guide is to take advantage of the research you conducted and make an investment so you can begin to profit. Not all stock investments will be successful so it is important not to place all of your financial resources into a single stock.

The Easiest Stock Investment Strategy – Invest in Dividend Paying Companies

The best stock investment strategies are the ones that have been proven over a period of time, the longer the better. Few investment strategies have withstood the test of time. Great investors throughout history have used different approaches to investing according to their temperament and goals. The goal of every investor is to make money and compound their way to financial freedom while protecting their capital, whether the investor has a long term or short term view.

The different approaches are Value investing, Growth Investing and Income Investing and or Dividend Reinvesting. Each of these approaches can be used by the long term or short term investor, whether he is a day trader, momentum trader, contrarian investor, turnaround situations, buy and hold investor. These approaches can be used singly or jointly. Remember, every investor wants value from his investment. Everybody wants a bargain. Bargains can be achieved by analyzing the fundamentals of the company or by technical analysis.

Why is investing in dividend paying companies is the strategy to invest in the stock market when compared to other strategies? It is because once you have completed your analysis and you have decided to invest in the company, all you have to do is monitor the fundamental of the company including the payment of dividends.

Analysis of dividend income investing, value investing or growth investing is basically the same. All styles take effort and time to complete. However, keeping of income dividend is the easiest as you do not have to monitor the share price movement on an daily basis. With income investing you only need to monitor the fundamentals and dividends on a monthly, quarterly, semi annually or yearly basis. This gives you time to enjoy life.

All of the strategies study the Balance Sheet, Income Statement, and Cash Flow Statement to calculate the ratios such asset growth, rate of liability reduction, sales growth, earnings per share growth, and return on equity. Once a suitable company is found, then the investor studies the strength of the management. Finally, the investor calculates the intrinsic value. Intrinsic value is the value of a company based on an underlying perception calculated from different ratios of the business. If the market price is lower than the market price, then the investor has found a bargain.

The difference of each strategy is minimal that is seems they are the same. However, it is important to realize that each strategy seeks a different end result. Dividend income investing primarily seeks income first, value second and growth third. Value investing seeks value first, income second and growth third. Growth investing seeks growth first, value second and income from dividend is not important for growth investors. In reality all are seeking value hoping to profit from their investment strategy.

For each investor the value is different. The best strategy is dividend income investing because while waiting to get capital gains from growth you can still earn passive income along the way. Better still you can reinvest divined income to compound your net worth without having to sell the investment. You can hold the investment forever or sell when you think the full value as been achieved. With growth investing to only way to achieve income is to sell the investment. Why would you want to sell an investment that has grown in value? Therefore, income investing is always better. Remember, you must find value in every investment, you cannot pay too much for an investment otherwise you will never get value. As Warren Buffet says “price is what you pay, value is what you get”. What can be a better value than getting immediate passive income from dividend income investing?

So, are you looking to be an active stock investor, yet do not want to monitor your investments the whole day. Do you want to invest solely for growth or do you want income which will lead you to financial freedom through compounding your income.

All of these stock investment strategies can be used to achieve success. Do you want to choose the easy or the hard way? I am quite for the easy method will be your choice and that choice is Income Investing. In the long term income investing and reinvesting the dividends will help you achieve financial freedom. Remember to choose the strategy which is suitable to your temperament. Also, remember, the easier system will always be the better choice. Learn and become the master of income investing through dividends paying companies. Remember, the aim of investing is financial freedom.

Investing in Dividends Paying Companies – A Complete Guide to What You Need to Start

Listed below are the main things you need to know and prepare to start investing in the stock market for dividend income to achieve financial freedom.

1. Money

You need money to invest in stocks. The question of how much investment you will put on the stock market largely depends on you and your savings as well. You don’t have to put all your money into the venture. Be reminded that although stock investing is profitable. Before deciding how much money you can invest, you need to do some calculations.

Prior to investing, it’s best to make sure your finances are secure. Though, there are great opportunities to profit through investing for dividend income, the stock market may not be suitable for you. If you have too many monthly bills or too much debt, you must wait before you start to invest in the stock market. As the market will always move up and down, it is better to pay down your debt, especially credit card debts. Once you have a positive monthly cash flow and six to twelve months emergency funds, you can to invest your money in the dividend paying stocks. You will be on your financial freedom.

To calculate cash available for investing

1.1. List all of your liquid (cash-like) assets: cash deposits in bank accounts, stocks, bonds, etc.

1.2. Add your monthly income including interest (average one year’s by dividing the amount by twelve) you will receive over the year the year.

1.3. Add your monthly cash outflows; this includes monthly expenses and any loan repayments you need to make. Average your yearly payments such as insurance and children’s’ school fees (if any) by dividing this amount by twelve.

1.4. Take step 2 and deduct step 3. If you have a negative cash flow, then you will to make a budget to control your cash out flow and strictly follow this to save money for investments. If the amount is positive, then you are ready to start investing. Remember, you must save some amount for emergency expenses.
Congratulations, you are ready to start in dividend paying companies to achieve financial freedom.

2. Investment Goals

After you have saved money for emergency funds, must set a target you want to achieve from your investments. This target will be achieved through income from dividends and reinvesting the dividends. You must have a long term perspective for your portfolio. Long term is at least 3 years or longer. Why 3 years or longer? Because, only in the long run will the dividend compound enough to make sense for long term investing. Also, if the company keeps in paying dividend and increasing the dividend amount over time, then capital gain is very likely.

3. Investment strategy

As investing in dividend paying companies is the easiest strategy, you must develop a plan on how to invest for dividends. Remember that market ups and downs can cause you to doubt your strategy. You must be confident of your strategy and continue investing. You must have researched your choice of companies to invest stocks. You must have a strategy on when to buy and sell.

4. Researching the Right Companies for Dividend Income

You’ll need to focus on investing in companies which pay dividends consistently. Look for companies which have consistently performed well over the past several years. Of importance are companies who did not cut dividends, even better if they increased dividends during the economic downturn. These companies have long-term potential to help you achieve financial freedom through income from dividends. Of more importance is whether these companies can continue their fantastic performance, is their business model long lasting? You must also check if the management is investing more into their own company. If they are, then these are a sign that the management is behaving like owners and are sure of the long term prospects of the company. If management is sure of the company, then you dividends are likely to continue for a long time. Long term dividends leads to financial freedom and you do not to keep buying and selling stocks.

5. Diversification

Diversifying your investments is extremely important. You can diversify your investment in many different types of assets, such as real estate for rent, dividend income investing and bonds to name a few. The easiest investment is in dividend paying companies in the stock market as the market is very liquid and information is easily available for you to analyze. Even while investing in dividend paying companies you must diversify your portfolio. This helps to protect your capital.

6. What’s your risk tolerance level?

You must understand your. You must know your risk tolerance level. Investing has many upturns and downturn. If you lose sleep after investing any money, then your risk tolerance is very low. That is exactly the reason you must invest in dividend paying companies as dividends help you to earn income during upturns and downturns of the market. You will be able to sleep well.

7. Educate yourself

It is extremely important you educate yourself regarding investing in dividend paying companies. You can take seminars or read books by various gurus to learn from the masters or invest in online courses. You must also read business newspapers and magazines regularly. Educating yourself will help you believe in the choices you make and this will lead you to make investment decisions. Once you are educated you do not have listen to others. You will achieve financial freedom on your own.

8. Broker

A stock broker is required to help you buy and sell stocks. Choose a broker wisely so that you can maximize your investing profits. Different brokers have different charges for helping you to buy and sell stocks on the exchange. There are full service brokers who for those who need more details before investing. Discount brokers charge cheaper rates; however, they do not give any advice. After you learn how to invest and are confident in choosing the right dividend paying companies, the wiser choice will be to use discount brokers enabling you to save money, thereby giving more money to invest for your financial freedom.

In conclusion, investing for dividends is a long term process. Getting dividends and reinvesting dividends will make you financially free. Instant wealth is not part of this process. Any person who has got instant wealth will normally lose the wealth as they do not know what to do with the wealth. Very few people become multi millionaires from the stock market, if it was easy very body in this world would be a multimillionaire. The idea of investing the stock market for income from dividends is to become financially free so you can live the life you desire.

Important Before Starting Investing in the Financial Sector

Each person would not want to lose in investing and of course everyone else will want a profit, but many people do not know how in order to profit by minimizing losses, therefore you need to consider the following tips.

Savings in the Bank or deposit at this time is not advantageous because interest rates are “single digits” cannot keep inflation well above average. In other words, our money is increasingly shrinking in value and its value is smaller. For that many people begin to look to the path started in the real sector investment (purchase of land, property, business, etc.) and financial sector (stocks, bonds, mutual funds, etc.) so the money can be fully utilized.

Perhaps you know that investing in the financial sector today is more practical and does not require substantial capital when compared to the real sector. Also sometimes investing in the financial sector is much more profitable, especially if managed well by you, the Fund Manager and investment company. Therefore many people have started to glance at the investment in this sector, but investment in the financial sector itself contains a higher risk than investment in real sector. If you are someone who relied on the principle of “No Risk No Gain” and the spirit of an investor who wants to exploit all the opportunities that exist, then you should read this article further, if not ignore it.

To invest in financial management are many things to know and learn first, especially for a beginner (newbie) in order to avoid the losses and profits enjoyed success in the future. So the point is a beginner should be a lot to know and a lot to learn, therefore we present important tips for beginners in investing in the financial field as an initial guide:

1. Identify the risks

Before you invest you need to know in advance what risks you will face. If we talk so bitter that you are facing the worst risks of an investment is to lose all your investment money and you should be ready about it if you want to invest unless you are investing in instruments that are either guaranteed by a bank guarantee, insurance, government or other entities that have authority for it. Many marketing investment or people with the promotion of an investment (marketer) will not tell this to you when it invites you to invest as it is a taboo for a marketer and you will definitely not be afraid and investments are offered to follow them when already know this. Usually the benchmark risk is the profit given by the company that made the guidelines, the greater the profit given the higher risk (High Profit High Risk).

2. Know your company’s investment

It’s one of the most important things if you want to invest safely and peacefully. You certainly want your money and in culturing the night you can sleep in peace without a headache thinking about your money is safe or not. For that you should first find out whether an investment company that you believe it is safe or not. How is their service to you, your question is answered or not when you call, easy or not to contact the investment company. Business license and registration are also sometimes important to know. Where the company can determine whether or not bona fide companies. Indeed, many investment companies that are not clear and some even have a fake license. If you want to invest a lot of money in an investment company, you really should check the condition and status of the company concerned.

Gold Investments – Some of the Hottest Alternative Investment Opportunities Today

Gold investments are among the best alternative investments currently available, especially in the context of the economic insecurity that still affects many world economies.

Why It’s Worth Investing in Gold

Gold is seen as a great investment whenever there is the threat of a raising inflation, as it helps people convert volatile assets into a precious metal that will continue to be valuable regardless of what befalls the economy.

But gold also makes for a possibly good investment for those who seek to get a nice return on their investments. Short term investments in gold, however, do not tend to be as rewarding as other investments, since the price of gold is somewhat more stable than that of say silver, which rises and falls more often and more significantly.

But when it comes to long-term alternative investments, gold is considered by many to be unrivaled. That’s because gold has been since time immemorial prized for its beauty and value, and will continue to be so for years to come regardless of what happens with the financial markets.

Unless an unimaginably vast deposit of gold is found soon – which is unlikely, considering that right known gold deposits are actually dwindling – gold will continue to retain its high value, which makes the precious metal ideal for an alternative investment.

Gold is venerated and desired and these contribute to making it one of the most secure things to invest it. And besides, when you invest in gold you can actually own the material, which may give you a pleasure than not all the money in the world can buy.

Gold’s Rivals: Silver and Platinum

Gold clearly dominates the other precious metals. Silver is more volatile and much less valuable, its market being much smaller than that of gold. This makes silver investments potentially good for quick gains, but ultimately unreliable for long-term serious investments. And besides, silver takes more storage space than gold.

Platinum, on the other hand, is more valuable, but also more difficult to handle. Investments in platinum are infamous for their high risk, and only few experts really carry them out. What’s more, unlike gold, platinum is hard to convert into cash.

How to Invest

Gold investments can be some of the most rewarding alternative investments, especially when they are significant. But even investing in small quantities of gold can be rewarding.

You can invest in gold by buying bullion or coins. Alternatively, you can buy stock in gold mining or gold producing companies, as well as gold futures contracts. Some say though that the best gold investments are those in which you buy and own the precious metal yourself.

Investing in gold is definitely one of the hottest alternative investment opportunities today. But to invest successfully you need to compare investment opportunities and to go with the one your calculations point you to.