Timberland owners must periodically make sound forest management decisions in order to increase the value of their investment. The time value of money is the concept that dollars available now are worth more than the same amount in the future, due to its ability to earn interest. The amount of the return, however, depends on the acceptable risk and length of the waiting time.
A rate of return factors in the time value of money, plus the compensation for the risk level. The rates can be expressed as a real rate of return, which does not include monetary inflation (changing of the value of a dollar) or a nominal rate of return, which does include an estimate of inflation. Forestry investments are usually expressed in real terms, excluding inflation. Real rates of return have usually ranged from 5-8 percent over the last ten years. Recent timberland rates have ranged from 5 to 5.95 percent.