Timber investment: scammers that promise to make money grow on trees!

These scammers promise that by putting your money into timber, you'll be able to make money grow on trees.

There's a big advert from one of the high street banks doing the rounds at the moment, promoting a three-year fixed rate deposit deal for savings.

The selling point is an increasing return in the second and third years finally reaching the heights of 2.4%. After basic rate tax, this fails to even match inflation.

Yet I receive countless emails promising a 15% fixed rate on investments. These come not from a high street bank (a rate like that would never get past regulation) but push forestry.

There is a “free report” but only if I give a telephone number – an open invitation to hard pressure selling. But there is some information as well as harvesting my contact details. One line stands out, promising: “Fixed returns of 20% on investment”. So within a few clicks, the promised gains have increased by a third. That's amazing.

Elsewhere, I discover the same firm claims 30% fixed returns. Anyone can offer a high fixed return for a year or so – it's just a matter of pushing up the purchase price and giving investors their own money back.

Does money grow on trees?

Despite trees taking decades to reach maturity, this is heralded as a “short-term investment” with a “guaranteed exit structure”. Keep that term “guaranteed” in mind.

As I don't want to have to deal with a timber salesperson, I decide not to give them my details. However, I find a brochure from a now defunct firm which is similar.

AJP Ventures started life in March 2009 and was dissolved in December 2012. The sole director has a history of failed ventures, including land banking, marketing and software.

Its literature contained gems such as: “Trees just keep on growing year after year. So investing in timber is an excellent way to balance your portfolio as its value rises even when stocks are falling.”

This makes little sense – just because trees grow, they do not necessarily increase in value. The price of a fruit tree includes something for its future growth. And so far no one has ever found a relationship between the apples or plums a tree produces and the stock market.

Another line says “Timber is the best long-term investment there is, it is the only low risk, high return asset there is.” Really? Can such a wonder exist? Does anyone seriously believe that an asset can just continue to rise?

Compare top savings accounts

'Conservative' growth of 18% a year

This week, RISI, a US-based information provider for the global forest products industry, put out a report which suggested that in a world where we substitute screens for paper, and all manner of materials for wood, investing in timber and machinery for its processing is anything but a sure-fire winner.

The brochure from the defunct company showed how an £18,000 investment was projected – on a “conservative basis” - to be worth exactly £732,298 in 22 years' time. That's an 18.35% gain each and every year. This is a demanding return, and one that no regulated firm could advertise.

Before it went out of business, this firm made a big pitch at individuals to persuade them to get rid of their current pension plans and put it all into trees via a Self Invested Personal Pension (SIPP).

Those that bought into this unregulated advice may now have Acacia trees in Costa Rica but they don't have a pension.

How good is a guarantee?

Remember the word “guaranteed”? A guarantee is only as good as the company making it. It is almost impossible to guarantee anything financial – even countries can go bust, taking their bond holders with them.

Back to my email. The small print states: “All information provided is for research and educational purposes only, and is not to be taken or regarded as an endorsement or recommendation as giving investment advice.”

It adds: “Such investments are only suitable for sophisticated investors and we strongly encourage people to consult an FSA registered Independent Financial Advisor (IFA) before committing to any form of investment. It is strongly recommended and encouraged that investors seek to carry out their own due diligence before committing to any investment product.”

I respect financial advisers, but I have yet to meet an IFA with expertise in forestry investment.

There is no comeback or recourse to the Financial Services Compensation Scheme. And the whole thing is run from a tax haven, making it difficult to pursue the company.

I love trees. I give to the Woodland Trust, a charity which protects our ancient woodlands. But, as beautiful and essential as they are, trees can never be an automatic money machine.

More on scams:

The University of Luxembourg research scam

Don't fall for this business rates scam

You'd be nuts to fall for this Brazil scam

The scammers that promise to turn your PC into an ATM

When is a cold call not a cold call?