Any good portfolio manager will advise you not to invest all your money in on e stock or bond. Diversification is important. Mutual funds, available, through most employers, offer some degree of diversification. For landowners, another investment opportunity is available…. tree farming. To illustrate tree farming’s potential economic returns, let’s assess before-tax returns for abandoned agricultural land and cut-over forest land. For comparison’s sake, returns for average and good land are presented. Regarding land cost, assume: 1. The land was inherited from your parents (no out-of-pocket costs) or 2. You bought you land for $300 per acre.

Parcel	Land Quality	Zero Land Cost	$300/acre
Pasture	Average	14.9%	11.3%
	Good	16.8%	12.9%
Cut-over	Average	13.8%	10.7%
	Good	15.6%	12.2%

Now, Let’s compare these with some typical 401K-investment funds. Rate of return for each fund is given since the fund’s date of inception.

Fund	Date Started	Rate of Return**
Federated Automated Government Money Trust	8/6/82	6.32%
Fidelity Advisor High Yield Fund	1/5/87	14.11%
Invesco Total Return Fund	9/1/87	14.16%
Vanguard Index Trust 500 Fund	8/31/76	15.06%
Janus Fund	2/5/70	17.08%
Aim Constellation Fund	4/30/76	19.42%

** Rate of Return as of September 1997

As you can see, timber is an excellent way to diversify your portfolio, not to mention other advantages associated with land…. recreation, personal enjoyment and the like. While it is a long-term investment (25-35 years), risks are minimal for well-managed tracts.

Adapted from Sustainable Forest - Key to Your Future! Alabama Sustainable Forestry Initiative Implementation Committee. Montgomery, Alabama

School of Forestry & Wildlife Sciences Extension
602 Duncan Drive · Auburn University, Alabama 36849