Patrick R. McDowell, CFP®, AIF® was quoted in a US News & World Report article by Rebecca Lake discussing how to diversify your investment portfolio.
“Money doesn’t grow on trees” is a popular adage but timber investors might disagree. Timber investments can bring consistent growth to your portfolio.
“Whereas certain assets like cash and bonds can periodically diversify a portfolio away from stocks, they do so at the expense of overall returns,” says Patrick R. McDowell, investment analyst at Arbor Wealth Management in Miramar Beach, Florida. “Timber has been a superior complementary asset to stocks over the last 40 years.”
Don’t limit your horizons. Considering only timber REITs or ETFs may mean missing the forest for the trees, McDowell says.
He offers advice for investors who want to own timber with the dual goals of earning similar returns to stocks while diversifying away from stocks.
“You want to find individual assets that are very reasonably priced that will provide you similar long-term timber returns without paying a premium,” McDowell says.
McDowell uses Keweenaw Land Association, Ltd., a land and timber management company Arbor Wealth Management is a shareholder in, as an example of an individual stock that fits that mold.
“By our valuation, investors today are essentially buying the timberland at cost and getting upside potential from three things: potential REIT conversion, mineral rights development and potential sale of whole company,” McDowell says. “If none of those things happen, we still own timberland at cost which should roughly mimic overall timber performance over a decade long time frame.”
In the meantime, the outlook for timber investments remains positive.
“We expect timber assets to produce anywhere between 5 to 10 percent annually on a go-forward basis,” McDowell says.