When people think about investing, they usually start by looking at the stock market. But there are many other ways to invest your savings besides stocks, mutual funds, or exchange-traded funds. In fact, diversifying your portfolio with investments that are uncorrelated with stock market performance (or even negatively correlated) is often a smart move.
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Whether you can’t get over your fear of Wall Street or just want to diversify, read on for alternative investment options to put your money to work for you without buying stocks. Keep in mind that these options range from very safe to very volatile, so do your homework before investing.
Investors who are looking for ways to invest in real estate but lack the cash or time to do the detailed research needed to purchase it outright should consider a real estate investment trust or REIT.
REITs invest in a variety of real estate, including homes, commercial buildings, hotels and warehouses, and then distribute the rental income to the owners. This allows you to include real estate in your portfolio even if you don’t have a couple million dollars available (or endless hours researching your area) to purchase some property yourself.
You can invest in loans to other people through peer-to-peer lending services like Prosper and Lending Club. You can contribute small amounts (as little as $25) to fund a loan a customer takes out and then get paid back with interest as the loan is repaid.
The risk is that you will lose your investment if the borrower defaults, but by investing small amounts in a variety of notes, you can reduce your exposure to anyone’s financial situation. If you have only one note and the borrower defaults, you’ve lost everything. But if you have 100 small bills, several borrowers could default and you could still come out ahead.
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Check out savings bonds if you’re looking for investments that pay stable interest rates. Savings bonds are offered by the federal government and pay interest over a specific period of time.
They are very low risk because they are paid for by the government, so the only way you will lose your money is if the government defaults on its debts. You can buy Series EE bonds, which pay a fixed interest rate, or Series I bonds, which have a portion of the interest rate based on the inflation rate.
You can invest in gold in a variety of ways, including gold bars, gold coins, gold mining companies, gold futures contracts, and mutual funds that invest in gold. Anyone thinking about purchasing bullion or coins outright should make sure they have a safe place to store the investment, such as a safe deposit box at a bank.
The Federal Trade Commission (FTC) warns that gold prices can go up and down and that you should research any company you are considering before purchasing. Although it may seem like an added bonus if the company you use stores the gold securely, it is especially important to make sure you are dealing with a reputable company if you are not taking physical custody of the gold you are purchasing.
Certificates of deposit (CDs) are bank accounts that offer a fixed interest rate for a specific period of time and are protected by the Federal Deposit Insurance Corporation (FDIC). In case you withdraw your money before the end of the term, you will usually pay an early withdrawal penalty.
Interest rates typically do not equal long-term returns in the stock market, but are guaranteed by the full faith and credit of the U.S. government not to lose value.
When companies need to borrow money, they typically issue bonds: bonds that anyone can buy from the company or on the secondary market.
A bond pays interest over a set period of time and then pays the face value of the bond when it matures. Interest rates vary depending on the borrower’s risk of default; The higher the risk, the higher the interest rates.
Unlike stocks, owning a company’s bond doesn’t mean you own the company, so you won’t make extra money if the company does very well. But if the company has a bad year, there is no change in the amount of interest it is owed, so its returns are more predictable than those of stocks.
That said, while corporate bonds are typically very safe, they do not offer guarantees. In the event of default or bankruptcy, you could lose most or all of your investment.
You can buy and sell future commodity contracts, including foods like corn or grains and metals like copper. As supply and demand for that good changes, the value of the contract also changes. This means you could win a lot of money or lose a lot.
Investing in commodities can serve as a hedge against inflation, but this is a complicated market with a variety of highly competitive players, so enter the fray with extreme caution, if at all.
Buying a vacation home to use as a rental property when you’re not visiting can be a great way to feed your soul and your wallet at the same time. You can use it when you want to take a trip and then rent it out to cover your costs while the real estate (hopefully) appreciates in value.
Although vacation rental websites can make management easier, the homes are not very liquid. So, in case you need to get your money out in a pinch, you may have to wait to find a buyer.
Cryptocurrencies are non-centralized digital currencies that are gaining popularity around the world. Bitcoin is the most well-known crypto name, but it is certainly not the only option.
Cryptocurrencies are very volatile and price swings are not for the faint of heart. Therefore, this is an option only for true gamers, or those who believe they really know what is going on.
Municipal and state governments also issue bonds to raise money for projects such as building new schools or roads. Although these bonds may pay lower interest rates than corporate bonds, the interest is exempt from federal income taxes and may also be exempt from state and local taxes. This makes their after-tax yield comparable to, or sometimes higher than, some bonds with better interest rates.
Private equity funds pool investors’ money under the control of a manager who uses the money to invest in private companies with management capabilities to help them grow. Private equity funds can generate higher rates of return, but they can also have high management fees and lock up your money for several years or longer.
Additionally, direct investment in private equity funds is generally limited to accredited investors, so you may not qualify to invest if your net worth or income is not high enough.
Venture capital investing involves lending money to startup companies to help them get off the ground. It’s the same as private equity but focused on early-stage companies.
Because these investments are risky, they are typically only available to accredited investors, but some relatively new options, such as equity crowdfunding, have created some limited opportunities outside of that pool.
Annuities are contracts in which you agree to pay a certain amount of money up front in exchange for a series of payments over a certain period of time, or over the rest of your life, from an insurance company. Annuities can be fixed, variable or indexed, with the difference being how your future payments are calculated.
Annuities often offer the advantage of delaying taxes on earnings until they are paid to you, but they can have high fees that can reduce your earnings.
They are also commonly associated with high broker commissions, which means that an investment expert guiding you toward an annuity might not have your best interests in mind, so be careful and do your own research before purchasing one.
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This article originally appeared on GOBankingRates.com: 13 Ways to Invest That Don’t Involve the Stock Market
