Aside from the fact that many Americans no longer trust the stock market, there may be other reasons why you may be interested in investments that aren’t tied to the stock market. This could have to do with diversifying your investments outside of stocks you may hold in an employer program or IRA, or just the idea that you’re looking to do something different with your money. Here are a few alternatives:
- Options – An option is a contract to either buy or sell shares (usually a stock or an ETF) at a particular price. Without getting into too much detail, the primary benefit can be that they use leverage to control 100 shares at a time with very little money. The downside is that when you’re buying a “call” option, there’s a time value premium that you pay which dwindles the longer you hold it. Alternatively, investors can “sell” options and keep the income from the sale, but the risk there is if the underlying security moves in the wrong direction, they could end up with a sizeable loss. They’re complex, but if it’s something you’re interested in, do some further research, and it might be a nice addition to your portfolio. More risk, more potential reward.
- Peer to Peer Lending – Peer lending has really blossomed over the past decade. Consider the example of a typical American that might be paying say, 25 percent interest on a credit card. To reduce their interest rate, they borrow money at 12 percent from a peer-lending site and cut their interest payments in half. Now, investors on the other side just decide how much they want to lend and to whom to lend. They can spread their risk across multiple loans so a single default doesn’t cost too much money.
- Real Estate (or REITs) – Real estate investing is a great way to diversify out of typical US stock market investments. Usually, to invest in real estate directly, it takes a fair amount of money and time for the down payment and routine management. If you’re not in that position, an alternative is Real Estate Investment Trusts, which trade like stocks but focus only on real estate holdings. They also tend to pay out decent dividends as well.
- Market Indexed CDs – With CD rates so low, many people have left the savings and CD arena completely, but there’s a new class of CD which links market performance to the return of the CD. That way, you get principal protection plus the opportunity for a higher return. Some online banks are starting to offer these.
- Gold and Commodities – Gold has certainly garnered a lot of attention in recent years. While it’s probably not a good idea to invest too heavily in any one precious metal, it is possible to supplement a portfolio with gold, silver or even platinum. This can be done with physical coins or just through ETFs that trade like stocks. The benefit here is that since they can’t be printed like currency, many people feel precious metals are a good store of value and inflation hedge should the US ever see very high inflation.
The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.