7 Alternatives to Stock Market Investing
Diversification is one of the key principles of investing, so it makes sense to explore other investments.
Here are seven alternatives to stock market investing to consider if you're looking for a different way to invest your money.
When you don't want to invest in stocks, one of the tried-and-true options is bonds. Bonds allow you to earn income while keeping your principle (relatively) secure.
In times of economic uncertainty, many investors flock to government bonds, which are regarded as the next best thing to a zero-risk investment.
Why not put your money into something tangible? You can buy a house and keep it with the intention of selling it for a higher price later.
Another option is to invest in rental property. You can buy a rental property that will offer you a steady stream of income. In either case, if you can handle the management parts, real estate might be a good alternative to the stock market.
3. Your Own Home
Housing is flourishing and given the current settings of monetary policy, this may well continue. Borrowing has never been more affordable than it is now, thanks to historically-low interest rates. You may extend your house, purchase a higher-quality property, or just refinance your mortgage at a cheaper rate and cut your loan repayments.
4. Residential Mortgage-backed Securities (RMBS)
Residential Mortgage Backed Securities (RMBS) are a form of bond that is backed by a huge pool of home loans. RMBS notes generally pool hundreds, if not thousands, of loans together, rather than simply two or three. Lenders pool hundreds of millions of dollars in mortgages (often a billion or more) before breaking them down into smaller classes.
While all investments carry some risk, RMBS are typically considered to be a less risky option than other asset classes such as stocks.
According to rating agencies, no rated tranche of a prime RMBS has lost money in the last two decades, and Fitch determined that 99 per cent of RMBS ratings have been affirmed, upgraded, or the notes have been paid in full.
Some of Australia's biggest banks and non-bank financial institutions, such as Westpac, ANZ, Commonwealth Bank of Australia, National Australia Bank, AMP, Firstmac, and others, have issued RMBS.
Residential RMBS investing can be a good method to diversify an investment portfolio, but direct investing in RMBS is not for ordinary investors. It's usually only offered to institutions and has big minimum investment requirements. However, there are some options outside buying RMBS directly.
The most common method is to invest in a managed RMBS fund, such as Firstmac's High Livez product. You can easily schedule a call with a Firstmac expert (online). The minimum investment in High Livez is $10,000.
5. Gold and other precious metals
Precious metals, such as gold, are typically purchased when the financial system is under stress or when significant inflation is projected. As a result, they have a lower correlation with other financial assets, which are likely to be declining in value at these times.
Other commodities, such as copper and aluminium tend to follow economic trends. Commodities are frequently considered risky investments since they don't distribute any cash; yet, most portfolio managers recommend having some exposure to commodities.
Physical commodities can be purchased or financial ETFs that mirror the physical price can be purchased.
6. Make an investment in yourself
This one may come as a shock to you, but think about it. One thing you can always put money into is yourself. How do you go about doing that?
One method is to improve your skills. Knowledge is power, and thanks to the internet, you can learn about almost everything. Masterclass, Coursera, and Linkedin Learning are some excellent sites for skill development.
Another option is to return to school and obtain a degree that will enable you to advance to the next level. There may be particular certifications in your area that might help you get a raise or open up new prospects at work. Hiring a career coach is another method to invest in yourself.
7. Your own business
Some investors believe that starting your own company is the best investment. You may build a local or online brand if you're an entrepreneur. Perhaps your neighbourhood needs a self-storage facility, a laundromat, or a car wash.
This approach may need a significant amount of money and time upfront. Although, because your business adds value to others, you can earn a long-term income.
Consider your risk appetite, your investment time horizon, and how much time you have to spend to investing when deciding which alternative investments to pick. After you've examined these factors, and sought independent financial advice, you can narrow down which alternative investments appeal to you the most.