Forestry Investment Risks – Buyer Beware
The current economic climate, defined by low interest rates, volatile equity markets and poor short-term visibility, is leading Investors of all shapes and sizes to investigate alternative investment assets in an effort to boost portfolio performance whilst also reducing exposure to traditional assets like equities.
Forestry is one sector where investment returns are driven more by the biological growth of trees into valuable timber than traditional growth fundamentals. Forestry also provides a shelter for capital, and superior compound growth, even during falling markets.
Institutional Investors have led the charge into forestry investments with Pension Funds and Hedge Funds acquiring timberland properties as part of their diversification strategy. This has led to the emergence of a plethora of forestry investment products aimed at the retail Investor.
With options to acquire small forestry plots within large, managed plantations in Brazil, Costa Rica, Panama, Sri Lanka, Fiji, Thailand, Nicaragua, Australia and New Zealand, potential Investors could be forgiven for feeling confused, and the lack of quality information about the sector for Financial Advisors leads many to divert their Clients attention to other, more traditional investment assets like residential or commercial property, or even equities.
In this article we look into the main concerns regarding these retail forestry investments, and look to how risk can be properly assessed and mitigated.
The main issue regarding the vast majority of direct forestry investment products on the market is the basic structuring of the product. To avoid being classified as a collective investment scheme, many of the projects mean individual Investors purchase or lease a defined individual plot within a larger plantation, and having a notional choice of Forest Manager to look after the property and harvest / sell timber at the relevant point in the life cycle of the Forest.
Avoiding collective investment regulations means that Promoters can market and sell to any Investors freely, without the restrictions associated with collective investments which allow only certified sophisticated or high net worth individuals participate.
In reality, only two such schemes have been found to be operated in the way laid out in the marketing material, whereas the majority, it seems, do in fact manage the entire plantation as a whole, pool all plantation income and distribute to individual Investors based on their proportional ownership. Investors do not in fact receive income from their own, individual plot.
Whilst actually more secure (no physical risk to your individual plot), this structure managed in this way is quite simply a collective investment scheme. No commercial forest can be operated in any other way, fact. Most forestry investments therefore, should be collectives.
It is this collective management, combined with the fact that most of these investment opportunities are heavily front-loaded with profit for the Promoter and Project Developer that make for a huge counterparty risk. One such scheme in Brazil is selling a hectare of young teak trees (worth no more than $5,000 in the real estate market) to Investors for £100,000 on the basis that the timber sold will generate a profit.
Of course, investing in forestry is not a one-off capital investment; trees must be expertly managed over long periods of time and this requires capital. So the bulk of the invested capital is likely to be required to fund the on-going management of the trees and infrastructure. However only one company out of 9 assessed has been able to show that the majority of invested capital is ring-fenced for property management, in fact much of the revenue from Investors ends up in the salesmen’s pocket, earning up to 20 per cent of invested capital commissions. A different project identified in Brazil offered a 40% commission to interested Brokers!
Let’s look at the numbers and run a very basic feasibility study. One hectare of established teak will encompass circa 1,250 trees, with around 400 trees making it to year 25, at which point they will yield something like 1 cubic metre of commercially viable timber per tree. Teak timber trades at about $400 per cubic metre for processed wood and about $250 for logs, so one hectare will produce about $100,000 worth of logs to be sold at the farm gate, minus the cost of harvesting.
How then is an Investor paying the equivalent $155,000 for this hectare today supposed to make a profit if total revenue (excluding any residual revenue from intermittent thinning) is less than $100,000? Are investors reliant on timber prices increasing?
Well, if timber price were to increase at a rate of 6% per annum, then plantation income would jump up to $300,000 at harvest ($756 per log) in 25 years’ time, but factor in inflation at then current rate of 5% per annum and the income in real terms (inflation adjusted), falls back to $120,000. A 20 per cent return over 25 years equates to a simple annualised rate of less than 1%.
It is extremely likely that, once Investment eventually dries up as Investor appetite is satiated (as in the case of many similar failed Managed Investment Schemes in Australia), then the Project Developer has no economic incentive to continue, and there is no capital left to fund the continual management of the property.
At this point the Project Developer disappears and Investor are left with a few trees worth much less than they paid for them, with no way of accessing them or managing them, or even disposing of them. It is in fact most likely that the assets would be sold by receivers to recoup some capital and in that instance, Investors would get back only the real estate value of the property (remember the $5,000 per hectare).
In short, there is a huge economic incentive for Promoters to establish and sell such schemes as they make huge profits up front, but very little incentive to continue to operate them after the lion’s share of capital is invested (and syphoned off).
There is a huge risk that Investors could be left high and dry with notional ownership of assets worth nothing and no way to access them.
Although one or two good schemes do exist, the majority we have assessed have demonstrated nothing but the willingness of some ‘entrepreneurs’ to jump on the bandwagon and cash in on unsuspecting Investors.
Article Source: http://investmentarticle.com/category/investment-asset
To Invest Wisely is to Save Smartly
Some of us have been born to just sit and wait to inherit the fortune of their parents. Many of us, however, need to do a lot work to make money. Fortunately nowadays, making more money is not confined to working in giant corporations or putting up your own business. It is not a good feeling finding yourself relying solely on your monthly income. It is not safe as well to think that all days of the week business is brisk. The key to this financial dilemma is safe investments. A portion of your earnings may be set up in a particular type of safe investment. It will just be a matter of determining your financial goals before settling for the right safe investment system.
Basically, you invest because you want your money to grow. At the same time, however, you want to keep your principal safe and available once your investment account matures. When you feel less secure in your employment, you want to put more money in your safe investments. When you get closer to your retirement, you want to put more money in your safe investments. Considering the potential risks in safe investments, how much more money should you put up for safe investments? Are safe investments not supposed to be the safe way of keeping your money? Obviously safe investments make your money safe, but to discount the possibility of risks to your investments is not a good business idea. The key to this another financial dilemma is to look for a type of save investments that poses the lowest risk. If, however, you dare to invest for something with a bigger return, you may start buying covered bonds. Covered bonds are like asset-backed or mortgage-backed securities. There are cashflows from mortgages and public sector loans backing up the debt instrument; but the advantage of covered bonds is that their assets remain in the issuing bank’s balance sheet. Hence, with covered bonds, investors have the recourse to go to the pool of assets covering the bond even if the issuing bank becomes insolvent.
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Invest Wisely in This Bad Economy
All anyone cares about today is finding the safest place to invest their money. The answer used to be in banks and the stock market, but after the catastrophic events in the past year, no one wants to put their money in those investments vehicles anymore. People are very skeptical nowadays. They want to know if their money market funds are guaranteed. They no longer contribute to their 401(k) plans, and they sure aren’t interested in venturing into real estate business any time soon. However you put it, these claims are true and perfectly reasonable. However, these are also exactly the reasons why opportunities exist for the brave and daring investors to build their wealth.
A lot of people see this economy as a threat, while some see it as an opportunity. Let’s take a look at the minds of these bold investors. Don’t just look at the numbersWith all the stock value crashes, bankruptcies, and workforce layoffs, it’s not uncommon for any investor to pull out his money and hide it some place safe. If you look at the business section of a newspaper or any news program, you’ll see that stocks are still plummeting and many businesses are still failing to make a profit. Indeed almost all stocks are beaten down, but do you know why exactly? Understanding the whole story behind a crash of a business or an industry is the real key in knowing where to put your money. For instance, take the case of Whirlpool Corporation.
The company is a powerhouse when it comes to the kitchen appliances industry. It was the market leader for a while, but now its stock has lost about 64% over the past year. Any investor would sell his Whirlpool shares in a heartbeat. But only the wise and enlightened ones will not remove this corporation from their portfolio. Construction of new homes has decreased dramatically, and the recent credit crunch has stopped people from buying kitchen appliances or updating their kitchen sets. However, dishwashers and refrigerators have always been part of people’s lives. They’re an absolute necessity in any household, and this will continue for a very, very long time. Banking on this company is a smart thing to do and probably a good investment because when the prosperity of the American economy returns some time in the near future, Whirlpool Corporation will most likely ride along with the wave back upward. Build a pot of goldFace it, the stock market is down. No matter how gifted you are in investing in the stock market, you will not see any gains any time soon. Unless you plan to delay gratification for a little while longer, forget about the stock market. Instead, consider investing in gold for the meantime.
Many financial experts believe that you may be able to benefit a lot from investing in the gold commodities market. After all, historical
experience tells us that gold has always been an exceptional way to hedge against financial crises. Did you know that at the heart of the Great Depression, the price of gold still rose from $21 per ounce to $27 per ounce in a year’s time? Cash is king. Always. A lot of people forget to have some sort of emergency fund. How often do we hear someone say “I put all my money in…”, or “I invested all of it in…”? Theoretically, it’s better to put your money in investment vehicles such as stocks and corporate bonds than in banks that give very low interest rates. However, in hard times such as this, it’s far better to keep your money readily available than tied up in some investment. Because investments are ugly now, you’re sure that they will be better eventually. After all they have to be. GP
Article Source:
http://www.articlesnatch.com/Article/How-To-Invest-Wisely-In-This-Bad-Economy/683134
How Do I Invest in Gold?
Investing in gold is a great way to insure your investment portfolio in case anything happens to either the market or the economy in general. Gold is the framework that all currencies are supposedly based on; when the dollar falls, gold stays strong. If you’re wondering how to invest in gold, there are a few different methods that you can use to diversify your portfolio and protect yourself against risk.
The first and easiest way to invest in gold is to make an investment in gold bullion. This is physical gold that you can hold in your hand, and most people store this in either a home safe or a safe deposit box at a bank. Investing in gold bullion is a very hands on approach that many people prefer because it becomes a tangible asset. There are a few things that you will want to consider when purchasing gold.
First of all, there are typically three types of gold that investors purchase: bars, jewelry, and coins. Jewelry and coins are the most suitable for a beginner gold investor because they are a smaller amount of gold. Bars are usually one ounce, which currently sells for somewhere around $1,200. Coins and jewelry of course weigh much less and so would be a better option for anyone who wants to put a little bit of money into gold but doesn’t want to dive all the way in. The reality though is that if you’re going to do anything, you should give it your all.
No matter how you are purchasing your gold, it’s always a good idea to try to get a low premium. The premium is the markup that the seller is offering so that he or she can make a profit. This is something that you always have to deal with, but you should aim for a premium no higher than 10 percent. This means that the price of gold only needs to rise 10 percent before you start to make a profit on your investment.
Coins are minted at a national plant and will come off the presses at 4 percent higher than the current price of gold, giving the government a small profit right off the bat. Retailers of these coins usually sell them for no more than 3 percent premium. If you want to calculate exactly how much the premium is, you can use this formula. Subtract the current price from the quoted price that the retailer gives you, and then divide that number by the current price. Multiply that result by 100 and you have your premium.
An extra word of advice for beginner investors is to stay away from rare coins or anything like that. These usually have an extremely high premium and their appreciation rate is a lot less certain than that of regular gold. You want to invest in something that will appreciate dollar by dollar the same way that any bar of bullion will do.
If you’re wondering how do I invest in gold, hopefully this article shed some light on the process. Gold is a sure investment that provides some insurance against these risky economic times.
Resource
http://freeyourmindonline.net/
How Do I Invest My Retirement
Invest Your Savings!
As business practitioner, I learn that it’s not the income that counts your worth but the saving. But how can you maximize your savings? Is it enough just to put every single cent in the bank and wait for it to grow? What are other avenues to invest in order to maximize the money market and savings?
How Do I Invest Video
Investments are good ways to grow your savings; depending on investment it will hedge your savings from the risk of loss, economic fluctuation and will give you high income. Some people chose to gamble in risky investment but some don’t, people in retirement stage invest more conservatively, they gamble in a sure win investment, and money market has that kind of investment design for retirees. Other however loves to gamble in a high risk, vulnerable investment. This is because they the higher the risk they deal with the higher the return of investment, these investor are usually in the prime of generating income so they are very positive of their investment ventures.
The Reason Why People Invest
Economy is one of the reasons why people choose to invest, since the economy can be positive and sometimes in bad shape. Investor tries to hedge themselves from the vulnerability of economy and to maximize their saving, by then they can put their saving from the investment they think profitable.
Sometime investment can make you millionaire or destitute in an instant. When you invest big and you invest in the right positive investment then it will give you mounted of income out of your saving but if you invest in wrong investment then there is a possibility that you will losses everything of your saving.
Diversity of Investments is Important
As the saying goes you should not put your eggs in one basket because it lessens the risk of losing everything that you work hard for. Diversity of investment can maximize saving it will generate different opportunity the market offers.
There are many options in the market that you can invest your saving to. Like paintings that become valuable overtime, investment securities banks offers, and putting up your business is also an option to consider.
Invest in Preferred Stock?
Companies raise capital in two primary ways. One way is to issue equity, which is otherwise known as stock, and the other is to incur debt, which is often done by selling bonds. Preferred stock is sometimes referred to as a hybrid since it has both the characteristics of common stock and bonds.
Common stock is what most people think of when referring to the stock market and big companies like Johnson & Johnson, Wal-Mart or Microsoft. The process of investing in preferred stock is carried out the same way you would invest in common stock, although it can be a bit trickier as the ticker symbols and some other information may not be as readily available. Here are some considerations before making your purchase.
1. Understand what you are buying.
Preferred stock behaves much like a bond in that interest rate movements will cause the price of preferred stock to move. If interest rates rise, the price of preferred stocks will typically go down and as interest rates decline, the price of preferred stock usually rises. The traditional factors that often cause a company’s common stock to go up or down in price usually has no impact on the price of a company’s preferred stock. There are a variety of different types of preferred stock with different features associated with each class, so be clear on what type you are buying. A great resource for research is www.epreferreds.com and www.quantomonline.com. As with any investment decision, you should conduct your own research or retain the services of a professional if you are not comfortable doing it yourself.
To understand more, learn how to calculate the intrinsic value of preferred stock.
2. Know why you are buying.
The most common reason investors buy preferred stock is because it provides an attractive dividend yield and can provide income. Depending on the type of preferred stock you purchase, you may be able convert your shares of preferred stock into shares of common stock (to learn more, read Convertible Preferred Stock for Beginners).
3. Placing your order.
The first thing you will need to do is to open a brokerage account. This can be accomplished by working with a traditional brokerage firm or an online brokerage firm. If you need the help of a professional for research and selection, a traditional or discount brokerage firm may be a good fit. Do not rule out online firms, but sometimes, online firms are reserved strictly for do-it yourself investors. The mechanics of buying a preferred stock is the same as buying common stock; you will need to decide how many shares you want to buy and you will need to know the preferred stock symbol. Be advised that the symbols can be tricky as there are often many types of preferred stock for the same company as previously mentioned. For example AMB PRL is for a different issue than AMB PRM even though it is for the same company.
Investment Diversification
The only way for money to grow in any market is through investing. While you want to invest for better returns on your money, it is vital that you diversify your investments. Adding an element of diversification to your portfolio and investments will minimize the risks of any drop in market sector.
• Select stocks from several different market sectors. For example, buy one or two technology stocks, one or two pharmaceutical stocks, one or two penny stocks and one or two financial stocks. By purchasing stocks of various different sectors, if one sector goes down the others will often balance the loss.
• Buy the stocks of other countries. Diversifying your risk by investing in two or three different countries allows you to minimize the loss if one country goes into a recession.
• Put some money into bonds. Bonds are less risky than stocks and help balance the potential losses of stocks, though they make less in returns as well. Diversification is not only about investing in different types of stocks, but also different types of investments.
• Invest in funds. While funds are more risky than bonds, they are also less risky than buying the stocks directly. A fund in a specific market sector is an investment in several companies within the sector rather than a single company, which further spreads the risk.
• Avoid buying investments all at the same time. Instead, buy one or two investments at one time and then buy the next investment later. By doing this, you provide enough time to research the market and the investment opportunity while also lowering your average cost.
• Invest in real estate. When considering options for real estate, you can either buy a house or put money into a real estate fund. In general, the fund is less expensive and more diverse than buying a house.
• Put some money into “cash” investments. Cash investments are the money market investments like Treasury Bills or certificates of deposit for short term investments. These have a low return, but are also a minimal risk. In general, keep only about 10 percent of your investments in cash or cash investments if possible.
• Add some gold to your portfolio. When investing in gold, you can invest directly in the metal by either buying gold stock or gold in the form of jewelry, coins or other objects, or you can invest in gold mining companies. In general, gold is a good element of a diverse portfolio.
• Purchase several stocks, bonds, funds and investment options. In general, it is not possible to properly diversify unless you buy between 15 and 30 different stocks, bonds and investments. You are not diversified if you buy only four or five stocks, one bond and one fund because you do not have enough to for proper balance within each area.
• Always consider your personal risk tolerance and the available duration of time you can put money into the investment before buying any stocks, bonds or funds. If you have a short amount of time, try working primarily with bonds and cash equivalent investments rather than stocks. The high risk of stocks requires time and profits are usually less in the short term than the long term.
Investment diversification is a strategy to minimize the risk of investing, but it does not guarantee profits.