Stocks... bonds... annuities... real estate... the investment tools that can fund a comfortable retirement are endless. But there's one very profitable asset class that is worth its weight in... wood.
In fact, it's outperformed many other investments and markets for several years now - and a recent downturn gives savvy investors an enticing entry point. So if you want to unlock the profit potential that timber holds, the time to invest is now - and we've uncovered one place where prime timberland is selling for less than $30 an acre.
Not just rugby and kiwis
It didn't seem to matter where I went during my stay in New Zealand... all I saw was entire hillsides covered from top to bottom, as enterprising farmers had planted trees anywhere they could.
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And with good reason. "It's their 401(k)," said my brother, who'd lived in New Zealand for nearly a year. "They plant trees, let them grow, then cut them down when they want to retire."
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When I think back to seeing the rows and rows of these farms, the investment potential of timber didn't immediately occur to me. But these farmers have really got things figured out.
After all, they don't worry about how the inflation rate is going to affect their holdings. They aren't worried about what the Fed is doing to bail out struggling companies. They simply plant trees, let them grow, and know that the money they'll make from selling the timber will take care of their retirement.
And based on the historical performance of timber, it will be a comfortable retirement, too...
A strong track record of impressive returns... during both bear markets and inflation
From 1972 to the present day, investing in lumber has produced annual returns of 11%. That means a $100,000 investment in lumber in 1972 would be worth about $4.3 million today.
In the US, you can often pick up land for under $1,000 an acre if the trees on it are still small. Within ten to 15 years, you can thin out your tract and get paid about $500 an acre for the pulp. And after 25-30 years, when the trees are mature, you should pocket $4,000 to $5,000 an acre for them at current prices.
What's more... lumber is also a fantastic way to diversify your portfolio. Like gold, timber tends to do better during periods when stocks and bonds go down. In fact, during three of the four largest bear markets of the 20th century, the value of timber actually rose.
And during the highest inflationary cycle in modern US history - between 1973 and 1981 - timber returned an impressive 22% per year.
Two timber stocks for your watchlist
If you're looking for the biggest and "best of breed" timber stocks, take a look at Plum Creek Timber (NYSE:PCL) or Rayonier (NYSE:RYN). Both companies own massive tracts of timber in the United States and offer solid yields of 5.6% and 7.1% respectively.
But if you're looking for an even more lucrative play, buying actual timberland is as attractive right now as we've ever seen. That's why institutional investors such as Harvard Management Company, which manages the university's endowment, bid on timberland in May 2008.
But why? Despite all the factors that suggest lumber prices should be high - the industry's long-term performance... the imminent infrastructure boom... and the fact that timberland is a limited resource - prices are still down.
But what Harvard arguably sees here is an excellent chance to invest at more favourable prices. And there are deals to be found... if you know where to look.
In fact, as I was conducting my research for The Street Authority Market Advisor, I uncovered some unbelievable prices for timberland.
For example, small tracts of 200-acre land are going for only $45,000 ($225 per acre). Some plots are as low as $165 per acre. The absolute best we found was priced at only $29 per acre of timberland - less than the cost of dinner for two.
Granted, buying timberland takes a little more time and investment than simply buying a few shares on the NYSE. But with this low cost per acre and the historic performance of this most basic material, we currently see timber as the opportunity of a decade.
This article was written by Tanner Callais, editor of the StreetAuthority.com, for the Smart Profits Report.
