Investing ideas that avoid the stock market

A fall day in the park

Investing requires resolve and a long-term vision, but it doesn't actually have to involve the stock market. Here's a guide to non-stock investing options:

Precious Metals

During the Great Recession, precious metal commodities like gold and silver were all the rage. As the stock market lost more than 50 percent of its value, gold and silver started a monumental rise in price. Gold went from around $600 per ounce in 2007 to peak at $1,900 per ounce in 2011.

The prices of the most popular commodities have since fallen from their peak; but had you invested in precious metals for that period of time (and others like it in history), you would have netted a healthy profit for your portfolio.

Relying solely on precious metals for your portfolio is extremely risky, though, and I wouldn't suggest it. However, commodities do tend to act in an opposite manner to the stock market, and using precious metals as a hedge against volatility can be a great strategy.

Related >> Beginners' Guide to Investing

Peer-to-Peer Lending

Peer-to-peer lending is one of my favorite alternative investments. It is the ultimate win-win for consumers. Consumer “A” gets a loan from Consumer “B” (and typically a large group of other investing consumers). Then Consumer A gets to pay off high-interest-rate credit card debt that stands at 20 percent with a personal loan that has a fixed term and a fixed interest rate of, say, 10 percent. This also means a fixed payment each month.

For their part, Consumer B and his friends get to enjoy a much higher rate of return than they would be able to reach with cash sitting in the bank. Both sides win: The borrower gets a lower rate and a fixed term to pay off the loan while the lender enjoys a healthy rate of return.

It's true that some see peer-to-peer lending as a risky asset class because you are relying on strangers to pay the loan back. As with any type of investing, you don't want to put all your eggs into one basket. Diversifying your portfolio of loans helps tremendously when you do experience a loan that goes unpaid. (Plus, P2P websites like Lending Club and Prosper have collection methods that kick in on borrowers who miss payments.)

I've become so enamored with peer-to-peer lending that I decided to embark on a little experiment. I divvied up about half of my Solo 401(k )contribution into both Lending Club and Prosper. The goal of the experiment was two-fold:

  1. See how much interest I could make with this investment strategy.
  2. Compare the two companies to see which one provided better earnings.

Overall, I was pleased with the results. Both companies netted double-digit returns for me, and I plan to add more money into these investments.

Owning a Business

Hands down, I think the alternative investment with the highest potential rate of return is running your own business. This isn't without risk — the vast majority of small businesses die within five years — but if you can outlast the statistics, it can be extremely rewarding.

I used to work for a company providing financial advisory services. I took a huge leap of faith, started a business, and started blogging. My financial planning business has thrived and my blog has earned well over six figures since I started.

The beautiful thing about running a small business is not only are you the boss, but you can grow and maintain it as much as you want. Maybe you love your full-time job but you want to try out a new skill. Spend your nights and weekends trying it out, earn some extra dough, and keep working full time. Even a little side income can make a huge difference in your financial life, and when you don't have time to maintain it, then slow down and focus on other priorities.

Related >> Best side jobs for extra cash

Real Estate

If you're interested in…

-significant cash flow

-leveraging other people's money

-enjoying large tax write-offs

…then real estate can be a great choice.

Let me be clear so I don't sound like a late-night infomercial: Real estate investing is difficult. The learning curve is significant. When you first start, you *are* putting all of your eggs in one basket because you will only have one property to rent out or flip. A previous GRS writer shared his experience of rushing into real estate investing.

Many people have lost their shirts trying to get rich with real estate. Even Dave Ramsey went bankrupt based on a series of really poor real estate investments at the start of his career.

Amid all the horror stories about crazy tenants, poor cash flow, and something always breaking, there is some significant income to be had from real estate investing. What's better is you don't have to put 100 percent down on a house. You can usually get away with 25 percent to 35 percent as a down payment and let the bank fund the rest of the purchase. This leverage means you can leave more money in reserve for the inevitable issues that pop up or to expand into a larger number of properties faster.

Bonds

Nearing retirement? You'll want to cut back on your stock allocation and put some of those funds into bonds. You might associate bonds with the stock market because they are so commonly paired with stocks in a portfolio, but technically bonds are traded on the bond market. You won't generate sky-high returns here, but you will also cut out a majority of the volatility you get from stocks. Very few bond investments have lost 50 percent of their value for two years and then returned 100 percent the next four years.

Related >> Investing 101: How Bonds Work

Investing in individual bonds carries more risk because they are not diversified. If the company that issues the bond goes under, you might not get your principal investment back. However, bond ETFs and mutual funds can provide the non-stock exposure of bonds with the added benefit of diversification.

Certificates of Deposit

The lowly certificate of deposit or CD. Simple. Basic. Low return.

And sometimes. . . just what the doctor ordered.

A CD is a simple financial product where you hand over some cash to a bank or credit union for a set period of time and a set interest rate. If you have less than $250,000 in total assets at that bank or credit union — across *all* accounts — your investment principal is guaranteed by the FDIC. You literally cannot lose the principal balance if you use this method.

The upside of CDs is stability and guarantee. The downside is, at least right now, inflation will be eating away at your principal balance. Certificate of deposit rates are extremely low due to the Federal Reserve's monetary policies but if rock-solid security is your number one investment driver, this is worth a look.

Related >> Best CD Rates

Annuities

Ewww. . . annuities. Don't all personal finance bloggers hate annuities?

Listen, I get it. Annuities CAN be bad. Terrible, in fact. Fees, confusing contract terms, and an encyclopedia of fine print.

Most people don't realize there are several types of annuities: fixed, immediate, variable, equity-indexed, and several more.

Hear me out. The right annuity with the right, sensible, un-scammy terms can be a solid foundation for a retirement portfolio.

In fact, Mike Piper, a previous GRS contributor, shared how you can create retirement income by purchasing the right annuity.

But like any investment, buy with caution. And be wary of commission-hungry, shady advisers just looking to make a sale vs. matching you with an investment that works toward your financial goals.

Yourself

Last but certainly not least, investing in yourself can pay dramatic dividends. I have personally done this in a variety of ways. Besides getting my CFP certification — certified financial planner — another major investment I made in myself was signing up for a coaching program.

I can't blame you if you're skeptical about coaching programs. I was too. It's been more than three years since I signed up for The Strategic Coaching program and it has literally been the best investment I ever made. The mentoring has allowed me to grow my business significantly, and the return on what I paid has been tremendous. It makes a 9 percent return in the stock market look like nothing.

In all, when you think of investing, you don't have to immediately think of bull or bear markets or even markets at all. There are other avenues to explore. Let us know what's working for you in the comments section below.

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DH
DH
6 years ago

What returns did you make on P2P? Would appreciate any more information you have here, have you written a post on it?

Thanks!

Jeff Rose
Jeff Rose
6 years ago
Reply to  DH

@ DH I’ve been very pleased with P2P lending over the years. I opened a small account with Lending Club ($3k) back in 2009 to test it out. I went the most conservative option and have made around 9%. Last year I decided to invest a much larger sum but wanted to test between Lending Club and Prosper. I called this the Prosper Vs. Lending Club experiment which you can see here: http://www.goodfinancialcents.com/prosper-vs-lending-club-experiment/ I was more aggressive in my approach this time and the returns have shown what with the last update being at 16% and 18%. I’ll be updating… Read more »

Ryan @ Peer & Social Lending
Ryan @ Peer & Social Lending
6 years ago
Reply to  Jeff Rose

These 16%-18% returns do not seem to be adjusted for grace period and late notes (correct me if I’m wrong). I would caution anyone looking at these numbers thinking this is what your annual return would be. Lending Club has a button to turn on ‘adjusted annualized return’ which assumes a certain percent of loans in statuses will eventually default based on history. Others use the XIRR method of calculating their returns. Your real returns will be determined once the notes are seasoned.

Jeff Rose
Jeff Rose
6 years ago

@ Ryan You’re absolutely correct and thanking for pointing that out. I addressed that in my blog post but failed to make that clear in my comment.

Thanks for clarifying!

David L. Wright
David L. Wright
6 years ago
Reply to  Jeff Rose

While P2P might be a reasonable option, I would hardly think that it should be thought of as an alternative to investing in the stock market. Yes, P2P allows you the opportunity to spread your loans across a large group of borrowers, but the possibility of default is likely higher than the likelihood of losing money in the stock market, especially if you invest in index funds that track the market. I am fine with P2P, but including it on this list makes it seems like a viable alternative to investing in the stock market. I would think of it… Read more »

Jon @ Money Smart Guides
Jon @ Money Smart Guides
6 years ago

I think that the best investment you mention is the investment in yourself. You are the one that is going to determine how much you earn over the years through hard work and education. By spending the money to make yourself the best you possible is the greatest investment you can make. And I agree about annuities. They’ve gotten a bad rap, and for good reason. But there are some good annuities out there, you just have to do the work to find them.

Jeff Rose
Jeff Rose
6 years ago

@ Jon

Thanks for the comment!

Brian@ Debt Discipline
[email protected] Debt Discipline
6 years ago

Have to agree with #8. One of the topics I’m sharing with my 3 children. To think beyond just getting a job and working for someone for 30 years. Start early to invest in yourself to build options and different passive revenue streams.

Money Saving
Money Saving
6 years ago

I agree with Jon above – investing in yourself can have the highest ROI of all of these 🙂

Ryan @ Peer & Social Lending
Ryan @ Peer & Social Lending
6 years ago

I too have enjoyed the returns of my p2p lending accounts. In my opinion, the key to being successful in p2p lending is education. It is extremely important to do research and understand how returns work before you just start picking notes. Fortunately, there are a lot of (free) tools out there and a community of people who are willing to help.

Matt YLBody
Matt YLBody
6 years ago

Great post. Another one I’m going to throw out there is actually MLM. I’ll probably get a lot of flack for that one but it’s an easy way to increase your income with little investment.

Mr. Utopia
Mr. Utopia
6 years ago

As Jon and a few others have mentioned, the best investment is really option 8: yourself. Investing in yourself can even have a synergistic effect especially if you learn and gain experience in other ways to invest. Meaning, if you learn all the “ins and outs” of real estate investing then your returns could be greatly increased.

lmoot
lmoot
6 years ago

Good article for us chickens…though I’m going to be flying the coop of safe investments soon. Don’t forget high yield savings accounts. With the plethora of online banks offering competetive rates nearing or at 1%, there should be no reason to have more than the minimum needed to pay bills, at a brick and mortar checking account. Also I would put cash back CC on this as you can earn rewards, often at 1%, back. For a power combo, use CC’s with 0% introductory rates (usually for 6-18 months)and earn 1% cash back on purchases, keep the cash in a… Read more »

Beth
Beth
6 years ago
Reply to  lmoot

I think it’s important to use tax-sheltered savings accounts if you can. I’ve moving as much money as I can into my tax-free savings account.

Otherwise, I’d be paying income tax on the pitiful 1.45% I’m earning.

Simple Money Concept
Simple Money Concept
6 years ago

Very inspiring! As Benjamin Franklin said, “An investment in knowledge pays the best interest.”

Jeff Rose
Jeff Rose
6 years ago

Great quote!

Nathan
Nathan
6 years ago

Precious metals don’t seem like a very good investment to me. They certainly provide a hedge against inflation, but they really don’t do much aside from that. They also require storage costs and aren’t producing any products or paying any dividends. A REIT or good utility will hedge against inflation and also pay nice dividends (4-5%). Bonds may seem like a safe refuge in a frothy market, but the low interest rates mean that longer-term maturity bonds will get hit hard if rates rise. I’m recommending to clients that they focus on a well-diversified portfolio of bonds with low duration,… Read more »

Jeff Rose
Jeff Rose
6 years ago

@Nathan It’s funny when I see people hating an annuities. For younger investors, I get it. Why in the heck would we want to own an annuity?

Now take someone in their 60-70’s that’s fearful of losing money in the stock market and also outliving their savings.

That’s where an annuity *could* make sense for that person.

Obviously, everyone’s situation is unique and multiple options should always be explored to see what the best fit is.

Cruncher
Cruncher
6 years ago
Reply to  Jeff Rose

I have been saying exactly the same thing. Annuities are insurance against running out of savings. For the right person, used the right way they are great. (Although sometimes they are sold with too many confusing options, but that’s another story!)

GC
GC
6 years ago

Where is Bitcoin on this list?

Over a year it has increased over 500S% in price.

Jeff Rose
Jeff Rose
6 years ago
Reply to  GC

I almost included it.

Next time! 🙂

James
James
6 years ago

Precious Metals are speculation, not investment.

Wes
Wes
6 years ago

Hey Jeff, Thanks for the article. I’m glad to see your contributions to getrichslowly.org. I’m hoping that this article does not steer people away from investing in the stock market, which I believe would be a huge disservice to your followers. As history has shown, investing in stocks over the long haul (decades) have outperformed all alternatives mentioned in this post. For someone with a long-time horizon looking to build generational wealth, why not invest in wonderful businesses churning out consistent earnings and dividend growth and solid ROE. I’m a believer that companies with sustainable competitive advantages and staying power… Read more »

Jeff Rose
Jeff Rose
6 years ago
Reply to  Wes

Thanks, Wes. Appreciate your comment. I definitely don’t want to discourage people from investing in the stock market as I realize the value it offers. Regarding you comment though, “As history has shown, investing in stocks over the long haul (decades) have outperformed all alternatives mentioned in this post.”, I have to respectfully disagree (based on my personal experience and some of my clients.) I’ve been investing for the 14 years and have accumulated a nice portfolio. But what has given me the most return on my money has been investing in my business (both my financial planning practice and… Read more »

TheCaveman
TheCaveman
6 years ago

Love this article! Precious metals can be a fun investment, as well. I’ve written a little about it in my blog, but I enjoy buying physical silver. It’s affordable, and I can hold my investment in my hand. Like you, I wouldn’t dump all my money into precious metals, but they’re a great investment for part of your portfolio. And for some people, investments that you can touch and hold just feel more real. I’ve also tried P2P lending before. While they can sometimes be volatile (especially when you’re lending to individuals) you just hedge your risk by spreading your… Read more »

Jeff Rose
Jeff Rose
6 years ago
Reply to  TheCaveman

Thank you!

Glad you’re seeing equal success with P2P lending.

Kevin
Kevin
6 years ago

Canadians: Create your own annuity with a TFSA.

Step 1: Contribute $450/month [the current max] into a TFSA. The deposits can be into stocks or mutual funds or regular bank accounts etc.
Step 2: Keep contributing every month.
Step 3: Whenever you want to start receiving your annuity, just start removing the amount of money you want every month.

No need for scammy terms and deals with the devil. Just sock money away and then take it out later whenever you want 🙂

Cruncher
Cruncher
6 years ago
Reply to  Kevin

It’s a nice idea but what happens if you run out of money and you end up working in Walmart in your 90s. Annuities are an income for life, that means you are protected against running out of money like that.

But I agree with you about the terms and conditions!

Johanna
Johanna
6 years ago

“I always thought stock investments were supposed to gain about 9 percent per year.” Now, why did you think that? Nine percent is (one estimate of) the average, long-term return of the stock market. There’s really no period in history when stocks ever returned a steady 9%, year after year, for any length of time. Those of us who came of age in the 80s and 90s may have gotten used to the idea that “stocks always go up,” but you don’t have to look back much farther than that to find an exception. From 1965 to 1980, stocks went… Read more »

El Nerdo
El Nerdo
6 years ago

Wow guys, you just nuked all the posts that came after this one!

Isaac G
Isaac G
6 years ago

There’s a simple solution to getting great returns and it’s actually a combination of two ideas you mention here. If you want an 8% return on your funds, just lend them out on real estate and charge 8% interest. It’s easier than you think and it leaves you better protected. I walk you through the steps at my blog: RetireBetterWithRealEstate.com. No strings attached. Just another great alternative to consider.

Isaac W
Isaac W
6 years ago

I would also throw in there “paying off your mortgage” since a large fraction of people with means to plan for the future have a home loan. You’re basically earning a guaranteed return on the interest that you’re NOT paying, for many that is over 5% APR. Some may point out that this return ends when the loan is satisfied; whereas, had the same money been invested somewhere else it would keep compounding. But I think that ignores the benefit of wholly owning your home and and having your monthly payment reduced to just taxes and insurances.

Cruncher
Cruncher
6 years ago

I completely agree with you about diversifying into different kinds of investments – not being stuck in one asset class (the stock market). And there is nothing wrong with annuities as you say – so long as you understand what they are. Annuities won’t make you rich. But they can be a secure base that will allow you to put the rest of your money to work, or take extra risks with it. Annuities are basically insurance against living too long. Like all insurance you pay for the certainty, but it can be worth depending on your situation. As always… Read more »

Marvin | Brick By Brick Investing
Marvin | Brick By Brick Investing
6 years ago

Great alternatives to investing in the stock market. However, I think the stock market offers the best way to passively invest in companies that have the potential to be here 50 – 100 years from now.

Stephanie Gutmann
Stephanie Gutmann
6 years ago

1. All well about “all that glitters” but I don’t like that precious metals sit there with no RoI. Moreover gold was in 1980 $850 and has roughly gained 2% since that. It should be way above 2.400 now to merely meet the inflation adjusted price of 1980. 2. I rent several apartments and this gives me 10.78% this year and 11.02 next. I always sign the contracts at the current apartments, of my future tenants and never had a problem. And if there was: who says we don’t have to work for our money? Observing stock markets is way… Read more »

Dipti
Dipti
6 years ago

Can you please discuss the tax implications by investing in P2P lending?

Yuri Rutman
Yuri Rutman
5 years ago

As of 2014, media & entertainment has outperformed every major stock index. A lot of investors simply do not have the access to backing high end film & tv portfolios but the ones who do are extremely successful. There are a number of prolific retail investors & institutional investors that are behind a lot of the commercial films & original television shows that are online. The playing field for an ROI in this space has been disrupted by technology delivery platforms.

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