There are many reasons to invest in forests. Investing in forestry can be seen as having purely environmental benefits, as forests play an increasingly important role in stopping climate change and capturing carbon. Forests are needed for carbon capture services, which open up new opportunities to profit from forest ownership.
Investing in forests is also beneficial from a more traditional investment perspective. Forestry investments are a good way to diversify your portfolio and can often help balance the risk and return in your portfolio. The returns on forestry investments have also beaten inflation in the long term, offering investors protection against inflation.
What determines the investment return from a forest?
A major portion of the return on a forestry investment is linked to tree growth. The good thing is that trees always grow regardless of the economic cycle. As trees grow, they become more valuable, which helps mitigate any decreases in the value of the forest plot when the economy is in a downswing. When the economy is up again, the trees on your plot have become more valuable and you have more of them to sell.
Risks related to forestry investment
There are also a range of risks with forestry investments. Direct ownership of forestry requires commitment and knowledge, as well as patience with the investment returns. You should be prepared for risks such as pests and storms. Forestry is also an illiquid investment by nature, which means it can take a long time for you to get your money out.
Forest funds are a hassle-free way to invest in forestry
By investing in a forest fund, you can just let the fund managers deal with the risks. Nordea customers now have the opportunity to invest in a well-diversified and professionally managed fund, which invests in European forest assets.