The stock market is a great way for you to grow your wealth. After all, if you simply follow the indexes and invest for the long term, you can achieve an average 8% return on your money. There are very few places where you can do this outside of the stock market. But not everyone is happy investing in the Motley Fool latest stock pick. Enter alternative investments.
With alternative investments, you can still achieve a decent return on your money and at the same time, limit the volatility that often comes when investing in the stock market. This isn’t to say that alternative investments are guaranteed to never go down in value. But chances are they won’t swing in value as wildly as the stock market does sometimes.
So what are some good alternative investments to consider? Here are 4 popular options to get you started.
4 Alternative Investments That Will Make You Money
#1. Real Estate
Real estate investing really picked up in popularity during the housing bubble and then tailed off. Now people see investment in real estate as a great alternative investment to the stock market.
In many cases, real estate investing is a good option for growing your wealth. But it isn’t easy. With so many people going this route, it is hard to find high-quality properties that are cashflow positive.
Add into the equation the management and ongoing expenses of the buildings and your profits quickly erode.
But the biggest hurdle for many is coming up with the money to put down on a property in the first place. Luckily there are some companies out there now that allow you to invest a smaller amount of money to get access to a pool of properties.
In this case, you would be entitled to an income stream equal to the proportion of your investment.
What can you expect to earn by investing in real estate? Don’t let the housing bubble or reality television shows fool you into thinking this is a get-rich-quick plan. Historically, you can expect to earn roughly 3% annual growth on your money invested in real estate.
#2. Peer To Peer Lending
Up until recently, banks did the lending and individuals did the borrowing. But thanks to technology, now individuals are able to lend money to other individuals. This is called peer-to-peer lending and it has really increased in popularity over the years.
It works by having a person needing a loan to skip the bank and visit a peer-to-peer lending website. There they list why they need the money and how much. A credit check is performed by the website to determine their riskiness and assign them an interest rate.
If you want to fund a loan, you visit the website and determine which loans you want to fund. You can choose to fund the entire loan for as little as $25. As the borrower makes payments each month, you get a cut of the payment that is equal to your investment plus interest.
I did this a few years ago and partially funded 4 loans for an average interest rate of 5%. Over the course of a few years, I earned my investment back plus interest.
What can you expect to earn by going the peer-to-peer lending route? It all depends on the riskiness of the loans you are willing to fund. A safe approach, where you invest in high-quality borrowers and a few low-quality borrowers should net you roughly 5%.
Another area of alternative investments to the stock market is collectibles. Here are some of the things that qualify as collectibles:
- Vintage fashion
Most successful investors in this realm stick to what they know. In other words, someone who is interested in and knows a lot about art will invest in this collectible and not in toys.
This is because they don’t know what is valuable and what is junk unless they really understand the space. As a result, this is the least popular alternative investment out there.
What can you earn by investing in collectibles? This one is really tough to nail down as it all depends on demand. You could have paid a lot for a collectible and when you go to sell it, find out there isn’t much demand and not make much money. Of course, the opposite is true as well.
But because of the high variability of this area, an average return cannot be listed.
#4. Precious Metals
In times of uncertainty, investors turn to safety to protect their wealth. For centuries, most people turn to gold. Being a physical asset means you can have ownership of the metal and you know that it is valuable.
And since people turn to this asset when the market tumbles, you can be assured in knowing that there are not many wild price swings when it comes to gold and other precious metals.
Of course, there are downsides to precious metals. The biggest is having the physical space for it. If you only invest in coins, this isn’t as much of an issue. But if you are buying gold bars, you are going to need a large area for safekeeping.
Luckily there are companies out there that will physically store the gold and other precious metals in their vaults for you.
What can you expect to earn by investing in gold and other precious metals? Historically you are looking at roughly 4% annually.
Overall, there are 4 great alternative investments to the stock market. For most investors, I would not recommend skipping the stock market and only investing in these alternative investments.
Instead, I would keep the majority of money in the stock market, but also invest some money into these other options. The reason is simple. Nothing compares to the long-term growth that the stock market provides.