Here's What Makes Timber Special You've probably never thought of investing in timber, the unprocessed version of lumber you see at Home Depot. Still, there are good reasons to do so - even when prices aren't sky-high. First, timber as an investment is almost unique. Companies go out of business every day. Even countries disappear off the map. None of that matters to timber. Trees grew through two world wars, the Great Depression, the rise and fall of the Soviet Union, 9/11, and even the global pandemic. Trees will keep growing, no matter the crisis du jour. Second, unlike wheat or corn, trees don't need to be harvested every year. You can harvest trees when timber prices are up... And you can delay harvests when prices are down. Banking timber "on the stump" helps smooth out prices and ensures against crashes. Third, the global supply of timber is falling even as demand is exploding. The world has lost the equivalent of 1,000 football fields of forest per hour for the last 25 years. That's about 10% of the world's wilderness. Meanwhile, there's been a surge in demand for timber as global economies recover from the pandemic. Exploding demand combined with dropping supply is almost a guarantee of higher prices in the future. How Timber Trumps the S&P 500 Historically, timber has been a terrific investment. It has outperformed the S&P 500 for more than 100 years. From 1971 to 2010, timber generated average annual returns of more than 14%. That's enough to have turned $10,000 into more than $1.6 million. Timber has also been a terrific investment during times of financial crisis. During the Great Depression, timber gained 233% even as stock prices fell more than 70%. In 2008, while the S&P 500 fell 38%, the value of timber rose 9.5%. Timber also performs exceptionally well during times of inflation. From 1973 to 1981 - when inflation averaged 9.2% - timber prices increased by an average of 22% per year. So if you're looking to protect yourself against inflation or a financial crash, you could do far worse than investing in timber. How to Invest in Timber Most of the options for investing in timber are complicated at best and unwieldy at worst. First, you can trade lumber futures. But with their leverage and volatility, futures are best left to the professionals. Second, you can buy a forest. But forests aren't as liquid as stocks. You can't sell timber overnight to raise cash. And you never really know how much your timber is worth until you try to sell it. Third, you can invest in timber-related stocks. My favorite way to do this is through the iShares Global Timber & Forestry ETF (Nasdaq: WOOD). This exchange-traded fund tracks the S&P Global Timber & Forestry Index. It consists of the 25 largest publicly listed firms in both developed and emerging markets that manage and develop forest and timberlands. The biggest chunk of the ETF - 34.7% - is invested in U.S. companies. Timber is, however, a global industry. As such, the ETF invests in stocks across the globe. Sweden accounts for 14.8% of the ETF. Plus, the ETF has significant allocations in Canada (14%), Japan (10.3%) and Finland (9.5%). Wood is in a stable, long-term uptrend and has strongly outperformed the S&P 500 over the past year. With lumber prices near record highs - and supplies remaining scarce - the investment case for timber has rarely been stronger than it is today. Good investing, Nicholas | 
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