Lots of folks wrote off concerns about inflation…
Plenty of investors claimed rising inflation was just “transitory” and weren’t worried at all.
I wasn’t one of those folks. Instead, I have been writing for months that we need to take inflation seriously.
Back in June, I wrote, “America is about to experience one of the greatest inflationary periods in our nation’s history.”
It was a bold statement, sure. But all indicators pointed to soaring inflation. And now, high prices are hitting consumers all across the country.
Did you know that the price of a dozen eggs is 29% higher than it was one year ago? Gasoline is more than 50% higher. Even something as basic as electricity is 5% higher compared with last year.
Inflation should be the No. 1 concern for many retirees right now. It’s hitting all of our wallets hard.
Today, I want to give you some actionable advice to help profit from today’s record inflation… (And by the way, I think we’ll continue to see inflation for a long time.)
The common thinking is that if you are in a time of inflation, you want to hold hard assets.
Something real and of practical use will skyrocket in value. And that’s true.
Crises and inflation often send people to precious metals like gold and silver. History tells us they will do well if stocks turn down and people get fearful.
But do they really have a practical use? Do they provide anything for you and your family? And do they deliver any income while you hold them through normal times?
And it turns out if you think deeper about a real need, it leads you to one of the best-performing assets of all time…
I’m talking about timberland.
Timber has been one of the longest-running, safest ways to build wealth. History says it will return around 12% to 14% per year…
Part of that comes from simple inflation. As prices in general go up, so does the price of lumber. And that’s what we’ve seen with today’s inflation.
Another source of returns is the appreciation of the underlying land.
Investment in timber underwent a pretty large boom after the “Yale Model” for institutions investing in “alternative” assets got popular around the turn of this century. Timberland went from an asset run by, well, timbermen, to one with lots of Wall Street money.
More timber assets are now being sold by institutions and bought by timber REITs.
Finally, the best growth comes from the growing trees themselves. Timber sells by the ton, so if you leave a tree for a year or two, it’ll get bigger and you can sell it for even more.
Here’s the basic framework…
A pine with a six-inch-diameter trunk can be used for pulpwood to make paper. That’s worth about $9 per ton at today’s prices. If you check in next year, that tree will be maybe 2% heavier, so you’ve made a return. (Of course, growth rates vary widely by species, geography, and weather.)
But if you wait a few years, it will grow large enough to hold a few boards – rather than just paper pulp. This is called “chip-n-saw” lumber, and it’s worth about $17 per ton. If you let it go for a decade or so and it gets to be 14 inches in diameter, it’s considered sawtimber. That sells for $26 per ton.
No, money doesn’t grow on trees… But it’s close to the truth.
This means, unlike other hard assets, timber is a “flow” and not a “stock.”
Timberland is not like an oil well. Cutting doesn’t deplete the resource – you can just plant more small trees and the resource grows back.
And perhaps better than anything is that you don’t need to cut.
If timber prices are low, you simply sit on your asset. You may not earn income that year, but as the trees grow, you’re still building wealth.
Those benefits – like the extreme stability of this asset – accrue best to direct owners of timberland. But unless you plan on buying your own timberland, most folks will be much better served by investing in timber through a REIT.
Timber REITs are subject to the swings of the market. While the forest sits unperturbed, the REIT that owns it will see its price rise and fall. But the REITs do carry some of the safety from the forest to the market.
One timber REIT you should consider is Weyerhaeuser (WY).
Weyerhaeuser is the largest private owner of timberlands in North America. It owns more than 11 million acres of timberland, and that puts it in a class of its own.
Since Weyerhaeuser is structured as a REIT, that means it must pay out 90% of its taxable income as dividends. That makes it a very attractive investment, with a yield of 1.8%.
Weyerhaeuser can be a staple of any portfolio wary of inflation.
Back in late June, I published three reports to help my Retirement Millionaire subscribers deal with the threat that is inflation. The first report is called “The ‘New Era’ Playbook,” which takes a deep dive into what exactly inflation is, why it’s happening now, and how you can be prepared for it.
The other two reports I published are called “The Perfect Inflation-Era Portfolio” and “The Two Most Valuable Assets in a Time of Crisis.” (Timberland is one of the most valuable assets in a time of crisis.)
Inflation is here. And it’s not going away anytime soon. That’s why you need to be prepared for it.
What We’re Reading…
- Retail sales rise faster than expected in October even as inflation pushes prices higher.
- Here we go again: Lumber prices shoot up 40%.
- Something different: Five items that are going up in price and why.
Here’s to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
November 17, 2021