Timberland Investment

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS 'Timberland Investment'

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.

RELATED TERMS
  1. Paper Industry ETF

    An exchange-traded fund that invests primarily in manufacturers ...
  2. Inflation

    The rate at which the general level of prices for goods and services ...
  3. Correlation

    In the world of finance, a statistical measure of how two securities ...
  4. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  5. Institutional Investor

    A non-bank person or organization that trades securities in large ...
  6. Timber Investment Management Organization ...

    A management group that aids institutional investors in managing ...
RELATED FAQS
  1. If the stock market is so volatile, why would I want to put my money into it?

    In this question, volatility refers to the upward and downward movement of price. The more prices fluctuate, the more volatile ... Read Full Answer >>
Related Articles
  1. Investing Basics

    5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  2. Bonds & Fixed Income

    The Importance Of Diversification

    Without this risk-reduction technique, your chance of loss will be unnecessarily high.
  3. Options & Futures

    Timber Investments Cut Down Portfolio Risk

    Timber's low correlation to other asset classes can enhance your portfolio's growth.
  4. Options & Futures

    Financial Concepts

    Diversification? Optimal portfolio theory? Read this tutorial and these and other financial concepts will be made clear.
  5. Stock Analysis

    Could PotashCorp Finally Spring Higher?

    In 2013 shares of PotashCorp , one of the major global producers of potash-based fertilizer, tumbled in response on fears of a worldwide glut.
  6. Chart Advisor

    Are These 3 Agriculture Stocks Headed Higher?

    Strong momentum across the agriculture sector is causing many traders to take a closer look at farming chemicals via the PAGG ETF.
  7. Markets

    What Cuba-US Relations Could Mean For U.S. Industry

    The restoration of diplomatic relations with Cuba could mean big profits for U.S. travel, agriculture, and financial services sectors.
  8. Stock Analysis

    How Union Pacific Makes Its Money

    If you need to ship titanic volumes of sundry products across sweeping distances, nothing's better than rail, where Union Pacific is a titan.
  9. Chart Advisor

    Commodities Set Up For A Continued Move Lower

    Commodities have been suffering since late summer, and unfortunately for the bulls it doesn’t appear that the situation is about to change anytime soon.
  10. Economics

    Ebola's Economic Impacts on Liberia, Sierra Leone and Guinea

    A summary analysis of projections of how the Ebola outbreak will affect the economies of Liberia, Sierra Leone and Guinea.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center