When people consider investing, they frequently begin by researching the stock market. However, there are other alternatives to investing in equities, mutual funds, and exchange-traded funds. In fact, it’s typically a good idea to diversify your portfolio with assets that aren’t positively or even adversely associated with the performance of the stock market.
Read on to discover about other investment choices to put your money to work for you without purchasing stocks, whether you can’t get over your phobia of investing in stocks or you just want to diversify your portfolio. However, the range of these options spans from safe to quite volatile, so do your research before making an investment.
1. Certificates of Deposit
Bank accounts known as certificates of deposit are federally insured and provide a fixed rate of interest for a certain amount of time. But if you withdraw your money before the term is out, you’ll often have to pay a penalty. Although the interest rates often fall short of long-term stock market returns, the full faith and credit of the US government guarantees that they will not depreciate.
Here’s a hint: Credit unions frequently provide some of the best certificate rates. For instance, the PenFed* Money Market Certificate now provides accounts with a 3-year term with a 3.25% APY (annual percentage yield). Without the risk and volatility of the stock market, this sort of investment gives large, guaranteed returns. Want to discover the precise amount of dividends you would get on your account? You may find out with PenFed’s convenient Money Market Certificate Calculator. Enter a deposit amount and term duration to quickly calculate your potential earnings.
If a 3-year term is not suitable for you, you can select from periods that range in length from 6 months to 7 years. A PenFed Money Market Certificate must be opened with a minimum deposit of $1,000.
Anyone can join PenFed, and it is federally insured by NCUA. You must sign up for PenFed Credit Union membership in order to obtain any offered products.
2. Trusts that invest in real estate
Consider a real estate investment trust (REIT) if you’re searching for a means to invest in real estate but don’t have the money or the time to do the extensive due diligence required to acquire the properties directly. REITs invest in a variety of real estate, such as residential, commercial, hotel, and industrial properties, and then give the owners the rental income. This enables you to incorporate real estate in your portfolio even if you don’t have a few million dollars lying around or the time to devote to thoroughly researching your neighbourhood.
3. Third-party Lending
Through peer-to-peer lending platforms like Prosper and Lending Club, you may invest in loans to other people. When a client requests a loan, you may give a modest amount—as little as $25—and then get reimbursed with interest when the loan is returned. You run the danger of losing your money if the borrower fails, but you may lessen your exposure by spreading out your investments among a variety of notes. If the borrower fails on a single note, you are out the entire amount. However, if you have 100 tiny notes, a number of borrowers may default, but you could still make money.
4. Treasury Bonds
If you’re seeking for investments with consistent interest rates, consider savings bonds. The federal government offers savings bonds, which give interest over a certain time period. Since the government pays them, there is very little risk involved; the only way you might lose your money is if the government went into default on its debts. You can purchase either Series EE bonds with a fixed interest rate or Series I bonds with an interest rate that is partially dependant on the rate of inflation.
There are many other methods to invest in gold, including gold bullion, gold coins, gold mining firms, gold futures contracts, and mutual funds that do the same. Any buyer who is thinking about purchasing bullion or coins directly should ensure that they have a secure location to keep their investment, such as a safe deposit box at a bank. The Federal Trade Commission suggests that you should research any firm you use to invest in gold before you buy since gold prices might move up and down. Even while it may seem like a benefit if the firm you hire will keep the gold safely for you, it’s crucial to deal with a reliable business if you won’t be taking physical possession of the gold you purchase.
6. Business Bonds
When businesses need to borrow money, they typically issue bonds, which may be bought by anybody directly from the business or on the secondary market. A bond pays interest over a certain period of time before maturing and paying the bond’s face value. The danger of the borrower defaulting affects the interest rates; the greater the risk, the higher the interest rates. You don’t own any equity in a firm when you purchase a bond, unlike a stock, so if the company does very well, you won’t benefit financially. Your returns are more predictable than stock returns because, even if the firm has a bad year, the amount of interest you are owed remains the same. However, even though corporate bonds are sometimes highly secure, there are no assurances and your investment might be lost all or substantially in the event of failure or bankruptcy.
7. Futures on commodities
Contracts for future commodities, such as crops like corn or grain and metals like copper, are available for purchase and sale. You may gain a lot of money—or lose a lot of money—depending on the changes in the supply and demand for that commodity and the contract’s value. Commodity investing can act as a buffer against inflation, but it’s important to proceed with extreme caution if at all because there are many participants in this market who are fiercely competitive.
8. Vacation rental homes
A excellent approach to simultaneously feed your soul and your portfolio is to purchase a vacation house that you can rent out while you’re not there. When you want to go on vacation, you can utilise it, and then you can rent it out to pay your expenses as the property (hopefully) appreciates. The residences aren’t extremely liquid, despite the fact that holiday rental websites might make management simpler. Therefore, you might have to wait to locate a buyer if you urgently need to withdraw your money.
Digital, decentralised currencies known as cryptocurrencies are gaining acceptance all around the world. Although Bitcoin is the most well-known cryptocurrency, there are other options as well. This option is reserved for the serious gamblers out there because cryptocurrencies are extremely volatile and the price fluctuations are not for the faint of heart.
10. Municipal Bonds
In order to raise funds for initiatives like the construction of new schools or roadways, city and state governments often issue bonds. Although the interest rates on these bonds may be lower than those on corporate bonds, the interest is not subject to federal income taxes and may not be subject to state and local taxes as well. As a result, your after-tax return may be comparable to or even higher than that of some bonds with higher interest rates.
11. Funds for private equity
Private equity funds are collectives of investors’ funds that are managed by a manager that makes investments in privately held businesses to support their expansion. Although private equity funds may provide better rates of return, they may also charge large management fees and keep your money in a locked account for a number of years or longer. You might not be eligible to invest if your net worth or income isn’t high enough, as direct investing in private equity funds is often restricted to accredited investors.
12. Venture Capital
By concentrating on early-stage businesses, venture capital investment is essentially the same as private equity in that it includes lending money to startup companies to help them get off the ground. Normally, authorised investors can only make these hazardous investments, but certain relatively recent choices, like equity crowdfunding, have opened up a small number of opportunities for non-accredited investors.
In annuities, you sign a contract and agree to pay a set amount up front in exchange for the insurance company making you a series of payments over time or for the rest of your life. The distinction between fixed, variable, and indexed annuities is how your future payments are determined. The benefit of deferring taxes on gains until you get them is one that annuities frequently provide. However, the hefty costs associated with annuities may lower your income. They’re also sometimes linked to large broker commissions, so proceed with care and conduct your own research before purchasing an annuity if a financial professional is attempting to guide you in that direction.