If you subscribe to this newsletter, you probably already know forestry is a compelling investment. Whether directly owning timberland or owning stock in a timber REIT, forestry investments provide an attractive alternative to traditional investment vehicles. Timberland returns are derived from a combination of biological timber growth and revenue generated from timber harvests and real estate sales. Also, a direct investment in timberland grants owners the opportunity to recreate and develop a legacy for future generations. Increasingly, people want a place to get away from the grind of day-to-day life. This is especially true of millennials and is why timberland may be the perfect addition to their investment portfolio.
Who are Millennials?
The Pew Research Center defines those born between 1981 and 1996 as millennials. While both confusing and intriguing demographers since entering adulthood, millennials now represent the largest generational group in the workforce. As heirs to the boomer generation, millennials will be the greatest beneficiaries of the “great wealth transfer.” Estimates of the size of this transfer vary from $30 trillion to $70 trillion. This means their financial market influence will continue to grow in the coming years.
Millennials have experienced wave after wave of historic, economy-rocking events from early childhood on into their professional careers: The 9/11 Attacks, The Great Recession, and the COVID-19 pandemic. While this series of life-altering events has created various obstacles for many millennials, it has shaped their personal values and investment strategy. In many cases, it has contributed to a higher risk aversion, emphasis on a healthy work/life balance, and a desire to build a resilient and sustainable economy through impact investing.
Why are they Risk Averse?
Much ink has been spilled about millennials’ hesitancy to enter the housing market and to invest in equities. Studies on affluent millennials show a tendency to hoard cash and carry a bond-heavy portfolio. These behaviors are considered to be atypical given their age. Millennials tend to be very skeptical of complex assets after watching venture capitalists feed the boom and bust of the dot-com era and observing how mortgage-backed securities contributed to the Great Recession.
Before placing their money in an investment, millennials like to know it has strong fundamentals, generates a consistent cash yield and provides diversity in a frequently rebalanced portfolio. For these reasons millennials tend to favor robo-advisors, low-cost index funds, and exchange traded funds (ETFs). While robo-advisors and ETFs are not particularly simple, they do provide simplicity in execution without human interaction. As hands-off investors, millennials should be drawn to stock ownership in timberland REITs. However, they may want to directly purchase timberland to satisfy social and recreational preferences. Timberland will be appealing to those millennials who want to put their hands on the investment. Timberland also resonates quite well with millennials’ desire to maintain a work/life balance.
What’s this about Work/Life Balance?
Millennials want to both work and enjoy life in a balanced way. Their aspirational goals require not only sustained effort but also restorative down time. Millennials are the driving force behind Financial Independence, Retire Early (F.I.R.E) investing. This social media-fueled lifestyle turned investment mantra encourages frugality and sacrificial levels of investment at an early age in exchange for an early retirement. This trend has led many millennials to invest in cash generating assets such as rental properties. However, rental markets carry risks that may not align with their broader personal and investment values. For this reason, timberland may provide a compromise that meets these criteria.
Depending on size, cashflow from timberland is less frequent but much larger. Other non-timber generated revenue such as pine straw raking contracts and hunting leases do provide a source of annual cashflow. This cash can be used to offset investment carrying costs and provide a source of capital for investment in other assets. Unlike most investments, you can visit your timberland property to recharge on the weekends. As a landlord, it is likely not wise to park your Sprinter camper van in your rental property driveway. However, the backroads of your timberland investment property could be the perfect place to do just that!
Impact Investments?
Millennials tend to focus heavily on sustainability because of their life experiences. In fact, their emphasis on sustainability even influences their decisions on investing in companies. Environmental, Social, and Governance (ESG) investing is one of the fastest growing niche markets on Wall Street. Money is pouring into ESG funds from millennials who feel strongly about investing for greater good in the world. The forestry investment sector is becoming a component of this emerging movement.
Today, many timberland REITs and TIMOs are devoting full-time staff to develop extensive ESG policies. Some are now beginning to offer investment options focused on impact investing. Consumer pressure on forest products companies combined with a sober assessment of stewardship values moved the forest industry towards quantifiable sustainability decades ago. As a result, the North American forest industry regularly measures and reports its sustainability. Therefore, forestry assets fit well with a millennial’s desire for impact investing.
How can we help you?
For over fifty years, FRC has advised landowners on how to express their values through forest management decisions. Our multigenerational team of experts bring a wealth of experience and understanding to every project. We can help you evaluate investment options that meet both your personal values and investment goals.