A key attraction of investing in timberland is the competitive returns it offers compared to other asset classes on a risk-to-return basis. Historically, the performance of timberland as an investment is most often measured by the Timberland Index, published by the National Council of Real Estate Investment Fiduciaries, or NCREIF. The index is analogous to the Property Index that NCREIF also publishes for the commercial real estate market.

Returns from timberland investments - as measured by the NCREIF Timberland Index - exceeded the Standard and Poor's 500 Index for 9 of the past 16 years from 1990 through 2005. In that period of time, the NCREIF Timberland Index annual compounded return was 12.56% versus 10.85% for the S&P500 (Table 1). Yet, the returns from timberland offered lower volatility (standard deviation) of 9.49% against the equity market's 17.35%.

Timberland, as represented by the NCREIF index, has performed well against other asset classes (Figure 1). This performance has been achieved without the tradeoff of higher risk. As an asset class from 1989 through 2007, timberland investment lies above the capital market line, as shown in Figure 2.