Branch Out Your Retirement Savings with Timber Investments in a Self-Directed IRA

Published on February 10, 2022

Investors seeking ways to avoid stock market volatility have been including alternative assets in their self-directed retirement plans for years. Including nontraditional investments in a self-directed IRA:

• Allows for retirement portfolio diversification
• Provides a hedge against stock market volatility
• Helps investors gain better control over investment earnings

Among the many alternative assets these plans allow is agricultural commodities, such as timber and lumber-related investments that enable investors to really “branch out” when it comes to how they’re leveraging their retirement savings.

Money can grow on trees?

When you include timber or trees in your self-directed IRA, solo 401k or other qualified plan, it certainly can. Investing in reforestation projects, exotic tree plantations (such as rubber trees), or even your friend’s budding Christmas tree farm are ways to include these soft commodities in a retirement plan.

In addition to being a hedge against inflation and stock market volatility, timber can yield high investment returns over time. Investing in timberland gives investors a stake in owning productive forest lands or tree farms. This is also attractive to individuals who want to include ESG (environmental, sustainable, governmental) investments in their portfolios, since investing in trees is an investment in improving the environment.

There are several ways in which to include these investments in a self-directed IRA and earn a rate of return on the asset’s:

• Biological growth (the bigger and denser the tree, the more valuable it becomes on a per-ton basis)
• Price appreciation (as the housing or furniture market demand for lumber increases, for example)
• Land appreciation (timberland is valuable real estate that can be converted in the future to another use after harvest)

Your self-directed retirement account can realize returns on investment when the timber is harvested and sold for material production, or by selling the plot after its value has increased through appreciation and timber growth.

Different ways to invest in timberland through a self-directed IRA

Self-directed investors can join legions of large institutional investors already investing in forestry projects and timberland. Ways to do so include:

• Purchasing shares in a tree farm
• Making an equity investment in a startup reforestation project or tree farm
• Investing in lumber futures
• Partnering with another self-directed IRA owner to pool investments in a tree plantation, with each retirement plan investing in small parcels

This website provides an interesting overview of what’s possible when investing in trees.

As with many alternative assets, investing in timber has a relatively long investment horizon as investors await tree growth and harvest. And with any self-directed investment, the account holder is strongly advised to perform full due diligence on the investments they’re interested in, including potential risks.

At Next Generation, we share ongoing education about self-direction as a retirement strategy and the many nontraditional investments they allow – like real estate, private equity, cryptocurrency and much more. Our firm also onboards new investors, executes those transactions, custodies the assets, and manages the tax reporting and recordkeeping. To connect with us, you may email us at NewAccounts@NextGenerationTrust.com or call (888) 857-8058. Alternatively, you may schedule a complimentary educational session with a Next Generation representative or have a quick chat with us via text at (848) 233-4076.