As we discussed in Warren Buffett’s Warning, it’s only a matter of time before inflation heats up. It’s already advancing faster than the official government numbers would have you believe. If you want proof, try travelling overseas nowadays, and see how far your dollars go. And because of the staggering national debt, both public and private, there’s no way for inflation to go but up. The time to prepare is now.

How Diversified Are You?

What’s the best way to combat inflation? Diversify out of the dollar into real property, commodities, and foreign currencies. One of our favorite investment ideas combines all three of these: Canadian timber companies. Timberland as an asset class has outperformed stocks for the past 60 years. The Canadian dollar has been growing against the American dollar at a good clip for a while now, and we believe there is no end in sight. Best of all, the Canadians are one of the chief suppliers to timber-hungry China. The companies tend to pay stable and healthy dividends as well, which can provide a nice, steady income stream even if the stock stagnates or dips.

The sum of these features make Canadian timber an excellent investment overall, and an especially good hedge against the coming acceleration of inflation. There are a number of great prospects, but our present favorite is Timberwest.

Timberwest owns several hundred thousand acres on Vancouver Island, some of the most productive timberland in the world. And it owns large tracts of land near development projects, adding the potential for big gains on real estate sales. You can buy the shares in the U.S. under the symbol OTC:TWTUF. It is currently yielding 6.2%, more than many income investments you can get nowadays. And you have the potential for excellent capital gains in addition.

You should also look at American timber companies. Rayonier NYSE:RYN has one of the best portfolios of prime timberland in the world, and has provided a rock-solid return for decades. And real assets such as timberland should hold their value quite well, even in the face of significant inflation.

Full disclosure: Jack Brynaur owns shares in Timberwest. Our disclosure policy.