When the economy and the market look shaky, gold and government bonds are the traditional places to park money. Lately, some investors have also been looking at something more rooted: timber.
The pitch is easy to like: a back-to-basics, natural asset that grows on its own, matures into a harvest and can be cashed in all while you use it to hunt, pitch a tent, or forage.
Institutions have been buying timberland at a rate of one million acres per year, according to Bank of America, and some financial advisors say individual investors, including younger Americans priced out of the housing market, are also taking a look at the asset class. But it is far from a rush, and investors who already own timberland caution that it may not be very profitable in the short term.
"Timber is a very low return investment. I have curtailed my investments," said Pat Dorn, founder of Anchor Investment Management, a fee-only advisory firm in Columbia, South Carolina, and a former chairman of the South Carolina Forestry Association. Dorn owns 2,500 acres of timberland in South Carolina's booming upstate region. Dorn said the problem is that right now more timber is being grown than is needed in a sluggish housing economy.
"Supply beats demand, and that causes flat prices. Timber is not an investment I would make currently," Dorn said.
Nationally, the Bureau of Labor Statistics' producer price index for logs, bolts, timber, pulpwood and wood chips ticked up in September, but prices have been mostly on the decline since summer 2022. This measures prices received by producers for those products, rather than timberland values or investment returns. Over the very long-term, prices have climbed substantially.
Financial institutions point to the asset class as one of interest specifically for the long-term investor. Ken Shepard, head of specialty asset management at Bank of America Private Bank, said that timberland is not a tactical asset class that can be easily entered or exited in response to short-term market conditions. "We view it as a strategic, long-term investment supported by several favorable secular trends, including the continued expansion of the timber industry in the U.S. South and growing demand for wood products beyond traditional construction uses," Shepard said.
For example, he said, demand for wood pellets used in bioenergy, while controversial, has increased significantly. In addition, timberland values are benefiting from strong demand from recreational and lifestyle buyers.