But investing in stocks is far from the only way to build wealth, with so many other options including building a business, acquiring real estate, investing in precious metals, and more. Depending on your investing preferences and personality, one of these alternative wealth-building strategies may be a better way to create financial security than investing in the stock market.
Many investors see lower returns due to investing poorly, trading too frequently, using high-cost brokers, the sales load on mutual funds, and other fees and errors that cut into their profits. Keeping an eye on each of these factors requires time, effort, and knowledge, which can be off-putting to some investors. If you are unsure whether you should invest in stocks or look for alternatives, be honest about your interests, personality, and willingness to invest not only your money but your time and attention.
Investing in stocks might not be the best choice for you if:. Luckily, you can still invest your money in other asset types to build wealth, reduce your risk, and diversify your portfolio. If you want to earn a good after-tax, net-of-inflation return without investing in stocks, there are popular and reasonable alternatives.
Running a profitable business, including a franchise of a national chain, requires a specific skill set. You'll need a long-term business strategy to invest, expand, grow your profits, vet employees, and handle all the details that come with business ownership. A business offers a reliable form of collateral if you ever need to take out a loan. At the end of your working years, a well-run business can either be sold for profit or passed down to the next generation.
Many investors gravitate toward buying and managing real estate investments because they are tangible and can offer a relatively passive form of income. Owning real estate also offers access to equity, which you can leverage to buy additional properties or improve your existing ones. Many sub-specialties exist for those who invest in real estate , including individual rental houses, apartment buildings, storage units, car washes, office buildings, industrial buildings, and even real estate options or tax lien certificates.
Silver and gold , along with gemstones and other precious metals, are generally physical items that you own. Investors can acquire coins, gems, or gold bullion, and large amounts should be stored somewhere secure such as a bank or brokerage firm. Many investors buy precious metals or gems with the idea that they never lose their value. While these items are consistently valuable, they are subject to supply and demand, just like any other market commodity.
Cash or cash equivalents, such as money market accounts and certificates of deposit CDs , are generally very secure investments that offer reliable and predictable interest rates. Also, while it may not be the case with fine art, wine or other collectibles, almost all alternative investments are less liquid than traditional investments, meaning they can't be cashed in as quickly or easily.
But despite that, there are some advantages to alternative investments. Read on to find out those advantages, and educate yourself before you dip your toes into those murky waters. Fine art can be a good investment because, historically, the price fluctuations in the art market don't reflect the ups and downs of traditional stock and bonds.
During the second half of the 20th century, the value of art based on the Mei Moses Fine Art Index , steadily increased at an average of However, while the stock market and the art market don't usually peak and fall at the same time, art still experiences its own shifts that can make investing risky.
For example, fine art sales boomed during the late s due to a surge in investment from Japanese investors, and again in the mids [source: Woliver ]. But even the thriving art market couldn't escape the global financial meltdown, though. The market has experienced a serious slump in the two years following, as well [source: Johansmeyer ].
Of course, the big advantage of art as an investment is that as long as you buy what you appreciate, you can always just enjoy it for its beauty, even if you don't see big financial returns. Investors in fine wines can expect to make a steady return between 6 and 15 percent annually over the long term [source: Reiss ]. Prices of certain vintages, and of fine wines in general, fluctuate from year to year. But prices of wines from the most sought-after vineyards and vintages tend to increase eventually as the supply becomes scarce [source: Opdyke ].
Wine connoisseurs and collectors are notoriously picky, so investors need to stay on top of things like which vintages will make good investments. Wines from the Bordeaux region and other parts of France provide more reliable returns, since they are prized among collectors, but many Burgundies, Italy's Super Tuscans, Spanish reds and California's cult cabernets also make good investments [source: Opdyke ]. There are also services, like Wineprices.
Even with some of the most expensive wines, you'll have to invest in large quantities to make a sizable return. And the wine must be stored in a temperature-controlled environment to keep it in optimal condition. Auction buyers can tell if wine has been stored improperly [source: Gobel ]. The bottles should be stored at temperatures between 55 and 58 degrees Fahrenheit Wine coolers can be purchased commercially for several thousand dollars, but there are also companies that will store wine for you.
Finally, investors should insure their collections, and keep careful purchase records to satisfy finicky auction buyers [source: Opdyke ]. There are two types of coins to consider when buying coinage for investment purposes. Bullion coins are minted by national governments, usually in gold. These coins are not collectible, because they don't derive their value from their scarcity. They can be bought and sold through reputable gold dealers for a price relatively close to the commodity price of gold.
The price of a coin will be marked up when you buy it, and marked down when you sell it since gold dealers need to make profits on their transactions [source: Picerno ]. In late and early , high performance in the per-ounce price of gold made bullion a reasonably safe investment.
The second type of coins used for investments are collectible or numismatic coins. These coins are valued, not for their weight in precious metals, but because of their scarcity. Popular collectible coins include Morgan dollars, Walking Liberty half dollars and certain Buffalo Nickels. Many factors influence how valuable a particular coin might be, including condition, which mint mark it carries and the year of issue.
Mint condition coins are always more valuable than coins that are heavily worn [source: Coin World ]. Certain years of coins had fewer mintings, making them more rare and valuable [source: Coin World ]. In the coin market, the rarest coins tend to provide huge returns upwards of percent of their value in a year , while more marginally rare coins provide only modest returns sometimes as low as 0 percent in a given year [source: Knaus ].
With any investment coins, find a dealer with a good reputation and inspect the coins carefully before making a purchase, as there are always forgeries circulating. Commodities include resources like crops and livestock, fossil fuels such as oil and coal, and precious metals like copper and gold. And the commodities market is one of the most volatile, since unpredictable natural disasters and world events have a direct impact on prices.
Take crops, for example. A drought one year can send the price of a particular crop soaring because scarcity triggers an increase in demand. The next year, a huge surplus could make the price of that commodity fall dramatically. Because of their unpredictability, commodities typically make better long-term than short-term investments [source: Picerno ].
The economic uncertainties after the recession drove up prices of food in the grocery stores and gas at the filling station, which means commodity prices rose as well. Commodities like oil, corn and gold climbed dramatically in , so investors who bought into commodities in prior years have seen impressive returns [source: Wallace ]. The safest way for individual investors to take advantage of the rising prices of commodities is to buy into exchange traded funds ETFs ; these are essentially mutual funds that purchase commodities or invest in commodity producing businesses [source: Wallace ].
The safest ETFs purchase several different commodities, rather than focusing on one. ETFs can eliminate some of the uncertainty from choosing which commodities might rise and fall at a given moment [source: Picerno ]. Private equity is investing in a company that does not issue public stock. Investors contribute capital to a company and then receive returns on their initial investment once the company reaches a certain stage, often an initial public offering of stock or a merger [source: Wells Fargo ].
Private equity investment has often funded start-up companies in high tech fields like telecommunications, biotechnology and recently, alternative energy [source: Lambert ]. The success or failure of an investment depends on how well a start-up company does, which is obviously a risky proposition even in a good economic environment. For this reason, high-net-worth individuals and venture capital firms have usually been far more active in private equity than small investors.
Often, the investors have a hands-on role in shaping the management strategy of the growing company. Individual investors have a few options for investing in private equity, but one relatively safe option is to work with a private equity firm to join a pool of investors. The safest option is to purchase shares in exchange-traded funds, which purchase interests in many private equity ventures at once to decrease investment risk [source: Lambert ].
There are good reasons to put a portion of an investment portfolio in private equity. Although returns suffer like most areas during economic recession, indexes of private equity funds have fared better than the stock market both during the first half of and during the 20 years prior [source: Cambridge Associates ]. Like other types of investment funds e. Hedge funds are less regulated than other funds by the U. Securities and Exchange Commission, so fund managers are able to make investments in a very broad range of financial instruments.
The Dodd-Frank Wall Street Reform and Consumer Protection Act passed in created some new requirements and restrictions for hedge funds, but focused more on reporting and transparency than on where fund managers make their investments [source: Cadwalader, Wickersham and Taft ].
Hedge fund managers can invest in stocks , commodities, derivatives, futures, options and all types of financial instruments. This broad leeway often brings positive returns. In , hedge funds around the world climbed while many stock markets fell or made modest gains [source: Yamazaki ]. Those who can afford to invest in hedge funds should be cautious. Not all hedge funds are volatile and high-risk, but investors should research the fund and its manager before making a commitment [source: U.
Securities and Exchange Commission ].
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But in the event you take out your money before the term ends, you will usually pay an early withdrawal penalty. A bond pays interest over a set period of time, and then it pays the face value of the bond when it matures. The interest rates vary depending on the risk of the borrower defaulting — the higher the risk, the higher the interest rates. That said, while corporate bonds are often very safe, there are no guarantees — with default or bankruptcy, you could lose most or all of your investment.
As the supply and demand for that commodity changes, so does the value of the contract, so you could make 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.
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. So in the event, you need your money out in a pinch, you might have to wait to find a buyer. Cryptocurrencies are non-centralized, digital currencies gaining popularity around the world. Investing In Cryptocurrency Explained. City and state governments also issue bonds to raise money for projects such as building new schools or highways.
Though these bonds might pay lower interest rates than corporate bonds, the interest is exempt from federal income taxes and might also be exempt from state and local taxes, making your after-tax return comparable or sometimes higher than on some bonds with better interest rates.
Private equity funds might generate higher rates of return, but they can also have high management fees and can lock up your money for several years or more. Venture capital investing involves loaning money to business start-ups to help them get off the ground — really the same as private equity just staying focused on early-stage companies. Annuities are contracts where 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 for the rest of your lifetime, from the 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 the earnings until they are paid out to you. But annuities might have high fees that can reduce your earnings. Keep reading about watches, whiskey and other unexpectedly worthwhile investments. Joel Anderson contributed to the reporting for this article.
Michael Keenan is a writer based in the Kansas City area, specializing in personal finance, taxation, and business topics. Read More. If you've got money to throw around, do something smart with it. Sponsored Links by Zergnet. Whether you want to spend or save, here are smart options.
By Jordan Rosenfeld. By Nicole Spector. The riskier the borrower is considered the higher the interest you can earn. Sounds like a bank right? Peer-to-peer lending has gotten popular through companies like Lending Club and Prosper who set up markets to match lenders with borrowers. Real estate is a huge source of wealth for the rich and you have a lot of ways to work real estate.
One way is to buy a house and rent it out, becoming a landlord. There are ways to leverage debt to acquire homes with minimal down payments. Do it right and your tenants will pay your mortgage. You have to be able to stomach dealing with tenants as well as all the warts a house carries with it.
You may have seen any number of popular shows on TV that deal with flipping houses. House flipping can be a relatively quick way to get big returns. You need the know-how and time to work on the house, or know people you trust that can work for you.
You also need the money to get the home and materials. These are real estate trusts where you invest in the trust that holds the real estate. Want to earn more? Have a skill that someone else finds valuable that you can get paid for. This could mean developing a new skill or improving skills you already have. Investing in your own skills can pay back with dividends when it comes to your earning power over your lifetime. Are you looking for a way to build wealth while getting out of the cube hive that is most office work?
Invest in a business. You can follow your passions and start a side-business to earn extra money. A couple of years later the startup goes public and you rake in millions! Too bad you have to be ultra-rich to take part, right? With a company like AngelList you can invest in start-ups without needing typical angel investor money.
Like angel investing the world of hedge funds is opening up a bit. Sliced Investing has worked to make hedge funds more accessible and easier to research. It seems every day the investments of the ultra-wealthy become a little more available to the masses. Of course the most important thing you can do on the road to financial freedom is start. So get going! All views expressed are entirely my own, and were not influenced or directed by Sliced Investing.
You can learn more about alternative investing at SlicedInvesting.
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