Thursday, April 13, 2006

Trees as Asset


One of my last investments is in a do good, feel good, make money investment that gets little publicity, it is called: high value trees.

After reading a few books about generational wealth preservation I found that they are a few consistent investments to have in your aim to preserve assets, and that included trees. I found the idea very compelling a basic to follow.
Basic things are not that difficult to apply but difficult to have broad market appeal. The example I used in the "billionaire donut."

Everybody knows that the number one creator of wealth is business ownership.
But most people decide for employement and leaves ownership aside, thus most becoming limted salary dependands. In that case the probality for wealth and education with substantial (100 million or more) assets is reduced to 1 in 1 million.
But the average person goal for money is more modest at one million to five million dollars by retirement age.

The magnificent thing is that not accounting for the value of their houses, 2 of every 100 of Americans have at least one million in assets.
The next stepping stone to wealth will be if you are part of the present elite the haves and the haves more as Presdent bush called his base. Those are CEO's, large private owners basically 40,000 or so familes who control 72% of the total wealth. That's makes it easy to drop a shoe.

For me, to get to the average goal is where trees come to play.

The number one investment on preservation of wealth is hard assets, and trees are as hard as it gets. Blommberg Wealth Manager Magazine called high value trees the perfect asset for wealth growth.

My next important consideration is tax savings.
The assumption gave me a series of class assets to consider that appreciates and do not pay taxes while they increase in value.
For most of us, the imminent asset is real estate. It is the asset that most people held as primary residence. In this class the next investment that holds value is commercial investments and third is land between driving distance of growing areas. The past years with declining dollar value and low interest rates, we have created a new high in returns for real estate. Those forces pushing prices might not hold true for the next twenty years. The caveat here is that if the dollar continues its decline and the Federal Reserve decides to change stance in interests and starts a new reduction period it might allow the bubble to continue but the probability of that is nil, and the most probable is real estate might not appreciate above inflation. Real estate needs stabilization in prices. After it stabilizes from present prices and a new pool of new prospective owners will get rebuild, unless the growth of new immigrants and nativity rates are not encouraged.
The second asset that appreciates and does not get taxes while grows is wood in the form of trees.
Corporations might gain concession from governments to harvest and this will fail in the above business creation category.
For individuals the next most profitable way to invest is to own a parcel of good land, preferably buy land that allows the growth of endangered species of high valued trees, and fully managed, the alternative will be to find larger company that will manage and buy the harvests as the trees grow. The average growth of a well managed tree farm can be as high a 15% and as low as 5%. The median growth is more common and that is around 9% for tropical woods.
The obvious constant here is time. Most individuals who invest in managed tree farms should expect slow, very slow, a really very slow process of getting returns. But you can count that a well managed farm with average tree growth in the range of 8% after 13 years can become a very compelling investment.
As of today is difficult for individuals in the US to invest in small amounts in this kind of asset class, it is mostly reserved for the people or organizations with at least $5000 start up and more. The ideal would be to have register shares on these investments at value of around $10 with no dividend distributions. I am not sure if the cost of trading the shares will make it valuable enough, but I am considering is learning from companies in Holland, Sweden and many other countries in which investors have access to shares of sustainable profitable tropical rain forest investments.

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