15 Common Alternatives to Investing in the Stock Market in 2023
April 15, 2022
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Investing in the stock market alone can be dangerous. If it crashes, you could lose everything in the blink of an eye. That's why looking for alternatives to investing in the stock market is the key to higher returns.
Here's what you should know about stock market alternative investments.
Why Invest Outside of the Stock Market?
Investing in the stock market might feel like the best or even only way you have to invest, but what if you had other options?
You might wonder why you'd consider alternative investments when investing in stocks is easy and convenient.
Here are a few reasons to consider an alternative investment:
- Inflation rates are skyrocketing and affecting certain investments, especially stocks
- The low-interest rates are causing much lower yields on conservative investments
- Portfolio diversification may increase your chances of higher returns
What Are Alternative Investments?
At first glance, the term "alternative investments" may seem like something off the wall or an investment no one would consider, but it simply means any investment that isn't a stock, bond, or cash. There are many alternative investment options to consider, whether in addition to your traditional investments or in place of them during times of high inflation or low-interest rates.
Alternative Investment Pros
Before you consider adding alternative investments to your investment portfolio, it's important to know their good and bad sides.
Here are the pros of considering alternative investment ideas:
- Alternative investments aren't tied to the stock market
- You might offset some portfolio volatility by diversifying your funds
- You might gain tax benefits investing in non-traditional investments
Alternative Investment Cons
It's always important to look at the downside of investment opportunities too. Alternative investments have some disadvantages, including:
- They can be more complicated than traditional investments
- Many alternative investments have high fees
- Some investments are only open to accredited investors
15 Alternatives to Investing in the Stock Market
If you're looking for alternatives to investing in the stock market, here are 16 options to consider.
Crowdfunded Real Estate
Crowdfunding means pooling funds together from multiple investors. Many crowdfunding platforms have low minimum investment requirements because they pool the money from hundreds of investors to fund the real estate project.
With crowdfunded real estate, you may have access to commercial investment properties that would otherwise be out of reach of individual investors. You may earn passive income from monthly rental income, equity buildup, or capital gains.
Rental Real Estate
Investors who can afford rental real estate can earn monthly cash flow from rental income and earn equity in the property as it appreciates. When you own real estate properties, you act as the landlord, maintaining the property, seeking and managing tenants, paying the property taxes, and handling all aspects of property management.
If there's enough room in the income earned from the property, you may be able to hire a property management company to handle the daily activities of maintaining the property, thus creating a more passive income opportunity for yourself.
Private Equity & Venture Capital
Accredited investors often have access to investing in private businesses through private equity or venture capital. Do your due diligence before investing in a business, especially a startup looking for venture capital.
This method of investing has the highest risk, but it also has the highest rewards when it works right. You can find opportunities to invest in private businesses through angel investor sites. You can sort through your options based on the industry you're most well-versed in and have confidence in as an investor.
When investing in real estate, you can buy farmland just like you'd buy a house or commercial property and rent it to farmers who need land. You collect the monthly rent for the use of the property and enjoy the benefit of the property's appreciation and capital gains.
Real estate investment trusts are investments in a real estate company. REITs must conduct a majority of their business in real estate and distribute at least 90% of their profits to shareholders.
When you invest in REITs, you invest in the properties the REIT owns and manages. This makes you a real estate investor without owning the rental property yourself. You earn passive income investing in real estate by not having to do any of the work to manage the property, but you earn dividends from rent, interest, and capital gains.
Gold has long been known as an inflation hedge, and many investors turn to it during times of crisis. It's a liquid asset, and it's non-correlated with your traditional investments. You can buy physical gold or invest in gold through exchange-traded funds or gold mining stocks, although that becomes a more traditional asset.
Silver is often second to gold in times of high inflation and crisis. Silver is another one of the stock market alternatives that is an inflation hedge, yet is highly liquid and can be sold quickly should it be necessary.
Cryptocurrency is likely one of the riskiest alternatives to investing in the stock market, yet one of the most rewarding when it goes right. Crypto is digital money that uses blockchain technology.
You hold cryptocurrency in a digital wallet, but its volatility is the highest among alternative investments. Determining which cryptocurrencies will be the most widely used and, therefore, most valuable is nearly impossible, but the sky's the limit regarding its use and possibilities.
Peer to Peer Loans
Peer to peer lending helps you earn returns and helps individuals who need financing and can't get it from a traditional bank. You can use peer to peer lending platforms like LendingClub to see the loans available for investing to determine the level of risk you want to take.
Most peer lending platforms offer loans across a variety of risk levels to allow you to diversify your funds and increase your potential returns.
Small Business Loans
Many small business owners don't have enough capital to get started. If you have money to invest, you can invest in the small business, helping them get started while investing in them. You collect interest as passive income and set the loan terms according to what you can handle as a part of your investment strategy.
Investing in fine art requires knowledge of the art market and the ability to store the art when you buy it. Of course, like any asset, there's no guarantee art will appreciate, but if you do your research and understand how the art market works, you may make the profits you desire.
Keep in mind that investing in art is a long-term investment. It's not very liquid, and there's no guarantee if and when the asset will appreciate enough for you to earn a profit selling it.
Antique cars are another asset class that may not be extremely liquid and specific to certain investors. You'll need a love for cars and knowledge about the car market. You should be able to spot cars that might become more valuable as time goes on since the everyday cars we drive generally depreciate.
Finding generally limited cars that car collectors want to get their hands on can be the best way to make money investing in antique cars, but remember, you need ample space to store such a significant investment.
Certain collectibles become worth more as time goes on, such as sports cards, antiques, and other rare memorabilia. This specialized niche is best for investors with a passion in that area and who understand the value of the items they collect and potentially sell for a profit down the road.
Your Own Business
Owning your own business is the best way to invest in yourself. If you have a great business idea, you can invest your money in the business and grow it. Of course, there's always the risk of a total failure which would mean a loss. Still, there are fewer roadblocks and requirements than other alternative investments that are only for institutional investors or people with a lot of money.
Like the investment advice given by most professionals, it's a good idea to diversify your investments, so you don't put all your eggs in one basket and risk a total loss. Even though you're investing in yourself, invest money in other stock market alternatives to offset any significant losses.
If you have a high net worth, you might consider being an angel investor to help a small business get up and running. You trade your cash for ownership in the business, but you don't have a say in how the owner runs and operates the business. Angel investors' money is usually the only money source the business owner has to get the business up and running. It's a high risk, but it could also come with a good reward.
Are There Risks to Alternate Investments?
Every investment has risk. Whether you choose mutual funds, a real estate investment trust, antique cars, art, or any other alternative investments, there is a risk of loss. Therefore, it's best to diversify your portfolio and focus on investments for institutional investors and those that aren't to vary your risk and increase your returns.
How Do I Invest In the Metaverse?
If you're interested in investing in a next-level virtual universe, you may want in on the metaverse before it gets even bigger so you can be in on the returns. Right now, the easiest way to get in on the metaverse is to invest in the stocks that operate in the metaverse space.
How Do I Pick the Best Alternative Investments?
To pick the best alternative investments for you, decide what you're most interested in and what you know the most about. For example, if you are interested in private businesses, you might look for private equity funds to help a business get started or expand. On the other hand, if you have extensive knowledge of art, antique cars, or sports cards, you might invest in them to make the most money. Look at the risk and reward of each option, and always make sure to do your due diligence.
How Does Inflation Affect Investments?
Inflation affects different investments in different ways. The stock market, for example, is highly affected by inflation, as are mutual funds and other investments tied to the stock market. Other investments, however, such as REITs, may be positively affected by inflation and be a good hedge against it.
How Much Money Should I Be Investing?
No two investors will invest the same amount of money. How much you should invest depends on the amount of capital you have, your risk tolerance, and your financial goals.
The Bottom Line
Diversifying your investments can help offset the risk of a total loss. You can invest in a variety of investments and potentially see higher returns, but there's never a guarantee with any investment. Whether you choose a rental property, REITs, collectibles, art, or something else, there's a risk for reward and loss with any investment. Learn more by signing up and visiting our blog.
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