Who says the smart investors only play the Market? Those who really know how to make the most of their money will often turn to other avenues for increasing their wealth.
Investing and risk go hand in hand, but sometimes it makes more sense to minimize those risks by avoiding any involvement in the Stock Market entirely. There are plenty of ways to see a return on your investment. Plus, with the trends of the market causing more confusion and reluctance than confidence over the past few years, the wise investors are infusing their capital into different investing opportunities to protect more of their money every year.
This is by no means to suggest that these other investment ideas don’t come with some risk of their own. Every one of these investment alternatives has some level of speculation that might result in the loss of some (or all) of your principle due to any number of factors that are inherent to each type of investment.
For some, the risk factors are higher than others. However, all of these investment options represent an opportunity to invest on firmer footing than you might find in playing the stock market. The returns are typically more assured with these various alternatives, although you may find you’re not seeing as much money on those returns by comparison.
The less risk associated with an investment usually means the less money available for you to make in return. Your particular financial goals may deem those lesser yields satisfactory. The good news is you won’t be prone to riding out the dramatic drops and gains that are part and parcel of the Stock Market and its unpredictable fluctuations that could be triggered by a range of crises foreign or domestic.
Remember, before you put your money into any form of investment, be sure you do all of your research first. When in doubt, talk to your financial professional about the realities of placing your capital into one of these investment alternatives.
1. Real Estate
Anyone looking for an investment that has high upside as a lucrative income stream should, first and foremost, look into purchasing real estate. Buying property involves plenty of work and your initial investment could increase beyond the capital that was spent in obtaining the dwelling itself. Repairs and improvements might require more expenses in order to get the property suitable for renting which is one of the primary methods by which you’ll begin to see a return.
Purchasing property may seem less risky than putting your money into the Stock Market. However, the fact of the matter is that real estate ownership comes with a wide range of possible dangers that could threaten your wealth.
Anyone that invests their money in property usually does so for two main reasons. The first is to purchase the property with the intent to eventually flip it and make a profit on the sale. The potential pitfalls with this avenue come with the often unpredictable fluctuations of the housing market and the additional resources that might be required for getting the property in suitable shape for resale.
Before you buy that house or condominium, you want to minimize the risks as much as possible. Begin by analyzing important factors that should be part of any decision for a purchase. The location of the dwelling, the neighborhood and surrounding areas that will entice buyers to want to buy the dwelling, the state of the other homes on that block, and the trends for resale prices should all be monitored. Also, set specific criteria for each of these parameters to help you decide on the viability of the property as commodity on the market.
The other reason for buying real estate is to rent that property out to prospective tenants for long periods of time. As you might expect, there are a range of potential issues that could arise from this type of arrangement as well. For starters, you will need to fix anything that breaks down or stops working. If a tenant causes damage to the property in any way beyond typical normal wear and tear, you will also be tasked with handling the problem and possibly left holding the bag when it comes time to pay the costly expenses that come with such repairs.
Getting those tenants into your property is also going to require some hard work and potential out of pocket costs. You will need to pay for advertising, building managers, background and credit checks of applicants, and other overhead costs that come with running a rental business. You’ll also need to collect rent each month and that could be more of a hassle than you may think.
The bigger concern, however, is what happens in the event that your property remains empty for a few months, or perhaps a year. That is lost revenue each month that the dwelling is uninhabited and that’s going to adversely affect your bottom line.
Despite all the risks that come with either flipping or renting the property, you can make a good deal of money when it’s all said and done. You just need to be smart about your strategy from the start and be sure you know what you’re getting into before you jump in. Some consumers might even be eligible for certain tax breaks that are offered for owning property or borrowing the money to do so.
2. Annuities
Annuities might put some people off at first since they’re not entirely easy to comprehend. They’re certainly more complex than putting money into real estate. However, don’t let annuities intimidate you as they can be a great way to invest your money in something other than the Stock Market. Much like with a property purchase, investing in annuities is going to require you to put up a large sum of money in order to get any real return back.
So what are annuities, exactly? They’re a lot like a retirement account in that you pay a significant amount of capital to an insurance company in exchange for monthly payments that are guaranteed to continue for as long as you live.
Payouts from an annuity can fluctuate based upon interest rates and the type of annuity you invest in. Therefore, you will want to do what you can to get in when the rates are in your favor.
You can buy one of three types of annuities: variable, indexed, and fixed. The amount of your payout will be affected based on which type of annuity you choose. You won’t begin to see those payments until you reach a certain age and the money that you are receiving consists of a portion of the initial investment along with any interest on that money that is being earned while in possession of the insurance company.
You may want to think about how you’re funding this investment first. While these payments are assured to keep coming throughout the rest of your life, you’re not going to be too sure how long you’re actually going to live. This could tie up a lot of money that you may ultimately not see again, depending on your age and health at the time you invest.
3. Peer to Peer Lending
Peer to peer (P2P) lending is one of the newer alternatives to investing in the Stock Market. There are more satisfied participants of peer to peer lending every year as it provides an ideal platform for connecting people looking to make money with people looking to borrow it.
Who says the banks are the only ones allowed to make a profit through lending? Thanks to the internet, now anyone can do it. The process is also very simple. You put up a sizable amount of money through one of the major P2P lending companies such as Lending Club or Prosper. Next, you decide how much you want to invest in the myriad of borrowers who are seeking funds for a variety of reasons (all of which are described on the site).
Let’s say you decide to invest $2,000 on one of these sites. You can then place that entire amount with one borrower or place smaller amounts with many borrowers who need a loan.
The latter is typically recommended for two reasons. First of all, you are likely to see more of a return on your money through diversification. Also, you won’t lose your entire principle should one borrower default. Of course, counting on perfect strangers to pay you back what you’re owed can be a risk. However, these companies have procedures in place to help you collect from unpaid accounts.
Investing in this method can also pretty lucrative. You can see a healthy return on your money with interest rates averaging around 8%-10%. This could be a lot less than a borrower might get from a bank or off a credit card. That means you’re making money and the borrower is getting a break on interest as well.
Both side are benefiting from this arrangement, which is why P2P lending has started to catch on. Just be strategic about which borrowers you decide to invest in which can help you minimize your risk and maximize your return.
4. Certificates of Deposit
Certificates of Deposit (CDs) are by far the safest bet on our list. They’re a smart way to make an investment in something other than the Stock Market without the concerns for losing any of your wealth over time. There’s very little risk involved in putting money into a CD and the reward is virtually guaranteed.
Getting into a CD is very simple. You can contact a broker, a bank, or even a credit union and select the length of the term that your money will be held in the account. The interest rate at the time you fund the CD will be the rate for the entire life of the term. Once the account is funded, then the rate is fixed. This interest rate won’t change no matter which way rates go during that time. Next, you’re going just sit back and wait until the CD matures in order to get the maximum return on your money through interest.
When the CD reaches maturity, you will receive all of your principle in addition to the interest that accrued while your money was parked in the account. The amount you see in terms of a return is sometimes the reason why many investors shun this option.
Since there’s very little risk to your principle, you’re not going to see a large return. There are some CD’s that let you park your cash for five years. While that’s a long time for your money to be tied up in an investment like this, it could be the best way to see a significant return based on rates of inflation each year. You also want to make sure that you’re not going to need that money back before the account matures since early withdrawal means you’ll be charged penalty fees.
5. Bonds
You may be a bit confused by this option, wondering how bonds can be an alternative to the Stock Market. Aren’t stocks and bonds grouped together in most portfolios? While the answer to that question is yes, bonds aren’t traded on the Stock Market but instead through a separate bonds market that has nothing to do with the former.
Bonds are often a smart alternative to stocks because they’re far less volatile and thus there’s less risk in losing your money. The reason is because investing in a bond has proven to be incredibly safe through analysis of past performance. Getting into an Exchange Traded Fund (ETF) or a mutual fund not only increases the safety of your principle, but can also help you diversify your accounts.
Some investors choose to go with municipal bonds as another way of investing their money into a safe haven for returns. These are issued by state governments in an arrangement that basically puts you in the position of a lender. The government borrows money through these types of instruments.
Some investors like getting into these types of bonds because they’re fully assured the borrower won’t default. In addition, these investments are exempt from federal income tax laws. However, each state has different tax laws that apply to municipal bonds. As with all of these investments alternatives, you’ll want to do your research first before you make any moves.
6. Life Insurance
It’s true, permanent life insurance can be a solid investment for anyone looking to pursue avenues outside of stocks. This is different from term life insurance which does not accrue any interest or gain any cash value over time. Term life only pays out should you pass away.
However, permanent life insurance allows you to build wealth that you are then allowed to borrow against should you need it. One of the major benefits of putting your money into this type of investment is that you won’t be required to pay taxes on the interest, capital gains, or dividends that accrue until you withdraw them from the account.
Investing in permanent life insurance works in a much similar fashion as placing your money into any of the retirement accounts that are available in the form of IRA’s and 401(k) plans. Borrowing the money in the policy to put towards buying a house or college tuition won’t require you to pay any taxes or penalties, either. However, since this is a life insurance policy you want to strongly consider taking any of that money out or your beneficiaries could receive less of a death benefit from the policy.
7.Gold/Precious Metals
Commodities such as gold and other various precious metals are a proven option for investing in other areas outside of the Stock Market. Gold is the most prevalent of these opportunities as investors have so many ways in which to invest. Owning gold bullion is probably the best-known method, but there also ETF’s that deal in gold along with gold mutual funds.
Each one of these options presents potential investors with ways to put their money into this opportunity without having to own bullion outright. There are also some investments like junior stocks and futures and options that sometimes carry greater risk because of their speculative nature.
Gold isn’t the only option, either. There are a variety of additional precious metals that allow you to invest your money for some pretty impressive potential returns. Platinum will often follow the same increases in value that gold gains. Other metals from silver to palladium can also provide significant value because they are highly sought after for use in technological products from automobiles to electronics and more.
You’ll want to be sure you know what you’re getting into with precious metals before you invest. They are typically meant to help diversify a portfolio as the trading for these items is far more limited than stocks or bonds. You may also need to put up a considerable amount of money to get in on these types of investments. Gold isn’t cheap but it’s incredibly stable no matter what type of chaos is currently rocking the world markets.
8. Running a Small Business
Whether you’re starting your own business or investing your money into someone else’s dream, putting money into a small business can be a risky yet rewarding proposition. For those of you thinking about putting your money where your proverbial mouth is and starting your own business, you’ve no doubt already heard about all of the pitfalls that are awaiting you down the line.
The ugly truth is that most small businesses never make it past the five year mark. Alas, even more of them die out before even that long. However, if you believe in yourself and your abilities, not to mention that you are absolutely certain you have a million dollar idea or marketable abilities to provide others with a valuable service, then taking that big step to invest in building a business could be one of the smartest decisions you’ll ever make.
After all, if you can’t invest in yourself then who else can you invest in? The good news is that you’re the boss and you will make all of the decisions regarding how to grow the business and get a return on your investment. That’s going to require an incredible amount of hard work, so you better be up to the challenge.
Owning and operating your own small business may also prove to have the highest potential rate of return than any investment opportunity on this list. So while there is a lot of work ahead of you, the rewards could be just as incredible.
Our Final Thoughts
Many investors are losing confidence in the Stock Market and, in turn, they’re looking for other places to invest their money that provide a more secure foundation for seeing a rate of return that makes the investment worthwhile. While all of these options come with various degrees of risk, the returns are commensurate with those risks. That way you can have some idea of what to expect in terms of increased value of your portfolio.
Stocks can be far more volatile in their performance. While you can certainly consider past trends when evaluating potential returns, they are not a sufficient standard bearer for how that stock will perform in the future.
These investment ideas provide an alternative to some of the guesswork that comes with investing in stocks as past performance of these investment opportunities can offer more clarity with respect to how they will function in the future. Stocks are a good idea for those who are ready to invest their money for extended periods of time.
However, for those of you who aren’t keen on committing to a long-term investment model or perhaps you’re nearing retirement and looking for diversification options to protect your money throughout your twilight years, these alternatives offer a variety of investing choices. These options can potentially increase the value of your portfolio while reducing some of the risk you’ll find with stocks.
