What are the risks involved in timberland investing?
The primary risks associated with timberland investments are commonly referred to as price risk, volume risk, and asset value risk. Price risk refers to the volatility associated with future timber and timberland prices. Volume risk includes the risk of inaccurately estimating standing inventory, and asset value, or liquidity risk, implies the risk associated with realizing expected disposition values. While considered negligible on professionally managed properties, the risk most commonly associated with timberland is the risk of fire. By maintaining healthy forests through active management and reducing dead and dying trees, the risk of fire is greatly minimized (see below). Disease, endangered species, and timber theft, all negligible on professionally managed properties, are other types of volume risks attributed to timberland.
