- Historically, the stock market has always been favored as a place to build wealth.
- The stock market isn’t the only place you can invest your money. In fact, some debate that it’s not even the best place to store your money.
- Other investments such as real estate, precious metals, and peer-to-peer lending are all great alternatives to the stock market.
The stock market has made many millionaires and billionaires. There’s no debating that fact. But what if you don’t even want to touch the stock market with a 10-foot pole? Then how do you build your wealth?
Don’t worry. Fortunately, the stock market isn’t the only way to invest and build your wealth. In fact, today you will learn 13 alternatives to investing in the stock market.
By the end of this article, you’ll be able to make your next investment move and have confidence in your decision. Let’s begin.
13 Alternatives to Investing in the Stock Market
- Rental property
- Your own business
- Existing online business
- Peer-to-peer loans
1. Invest in rental property
There are many ways to invest in real estate. You can flip houses, wholesale houses, buy and sell land to developers, start an Airbnb business, etc.
However, if you want to build wealth that will pay you dividends for life, you should invest in rental properties.
Rental properties give you three benefits that no other type of real estate investing give:
- Monthly income
- Property appreciation
Let’s very briefly go over each.
Tenants living in your rental properties will pay you monthly rent. Depending on how you purchase your properties (with cash or via financing), you may be able to use that rent as income to live from. Then you save both incomes from both properties to buy a third property, and so on. This is a very basic explanation, but you get the idea.
Property appreciation refers to the value of real estate increasing over time. Appreciation happens to properties when the demand to live in a specific area increases. For example, if there are many new businesses, schools, and restaurants being built in a particular area, the demand to live in that area may increase.
This demand creates a natural reaction to the property values in that area. In other words, property values increase. This is known as appreciation.
If you buy a house just to flip it and sell it in under a year, you won’t get to capitalize on the property’s appreciation. Appreciation typically happens over a long period of time—we’re talking years.
However, buy and hold investors (rental property investors) do get to experience appreciation because they are typically holding the property for 5+ years.
Adding physical real estate to your investment portfolio is a great way to diversify. Physical real estate has (almost) zero correlation with many other investments, including stocks and bonds.
This lack of correlation is a good thing. Why? If the stock market is down, it will have little effect on the housing market. Just because the S&P 500 is dropping like a bad habit, doesn’t mean the real estate market will also be dropping—it won’t.
Diversification is the key to reducing portfolio volatility. Adding physical real estate can be very beneficial as it will help your portfolio to be balanced.
How to get started
- Gain knowledge — Read books on rental property investing. I recommend The Book on Rental Property Investing.
- Make a plan — Decide whether you want to invest with cash or by financing with a bank or personal lender. Weight your options, choose what’s best for your plan and situation.
- Execute — Take action. No amount of success can be achieved without an adequate amount of work.
2. Invest in a REIT
A real estate investment trust, or REIT, is basically an ETF that invests only in real estate. REITs allow you to invest in real estate, without having to manage and babysit physical real estate. Don’t get me wrong; owning a box with a roof on it has its advantages.
However, maybe you don’t have $20,000 to shell out on a down payment. Perhaps you don’t want to deal with the stress of being a landlord. Or maybe you simply don’t have time to research properties, talk with sellers, and negotiate deals to buy physical properties.
In that case, REITs can be the perfect gateway to real estate investing. REITs are required by federal law to pay out a minimum of 90% of its profits to shareholders. Similar to dividend stocks, REITs pay dividends every quarter. Some REITs pay monthly.
How to get started
The best way to get started is by reading our REITs investing guide for beginners to learn more about REIT investing. This guide will teach you everything you need to know about finding, picking, and investing in REITs.
3. Invest in gold
There are a handful of ways to invest in gold. For example, you can buy stock in a gold mining company. You can buy ETFs that invest in physical gold, such as the GLD ETF. You can invest in gold derivatives, which are contracts linked to the gold price.
There are plenty of ways to go about investing in gold. However, all of these investing strategies would require you have to invest in the stock market. And the purpose of this article is to discuss alternatives to investing in the stock market.
With that being said, I want to talk to you about investing in gold bullion. Gold bullion is a physical flat bar of pure gold. You can store it in a safe, bank safety deposit, under your bed, or wherever you want (please keep it somewhere very safe).
The primary advantage of investing in gold bullions is that generally speaking, gold maintains its value. For this reason, gold is a good hedge against inflation. For example, one ounce of gold in the 1970s equaled around $35. Since then, gold has gone up in value to stay inline (or be above) inflation.
On the flip side, $35 in 1970 is only equal to $5.31 today. So if you had $35 and never invested it in gold, the value of your $35 would be only $5 today. Investing in gold can be a good alternative to the stock market. However, like with any investment, you must do your research and approach with caution.
There is never a guarantee that gold will go up in value, or even keep its value. Although it would be an unlikely scenario, the price of gold could drop at any point because of some uncontrollable market force. If all your wealth is in gold, you would be in a lot of trouble.
Remember, always diversify your investments to protect yourself against volatility.
How to get started
- Gain knowledge — Before you make any major investment decisions, it’s important you fully understand what it is you are investing in. Start with a gold investing guide such as this one from Investopedia.
- Choose a gold investing strategy — Decide how you want to invest in gold. Will it be through gold ETFs, gold stocks, or physical bars of gold?
- Start small — If this is your first time investing in gold, take it slow. Especially if you are investing in physical bars of gold—just buy a single bullion. See how you like it. See the risks involved. And just get a feel for it. You can always invest in more later.
4. Invest in silver
Like gold, silver is another type of precious metal that can make a great investment. But what separates silver from gold is that it’s cheaper. Much cheaper. This makes it an ideal alternative investment if you are want to invest with little money.
Similar to gold, there are a few different ways you can invest in silver. You could invest in silver stocks, ETFs, or derivatives.
However, you can also invest in silver bullion, a physical flat bar of silver. Investing in silver this way will remove many potential risks involved with trading silver on the stock market. This is because silver bullion is a physical, tangible asset. And although it’s still subject to market fluctuations, silver will likely never completely crash because of its real value.
Some investments have value based on subjective ideas. A good example of this is the many internet company’s that went public in the late 90s. Most of these companies had never turned even the smallest profit, and yet, they were valued in the billions.
You know what happened next. Most of those companies failed because there wasn’t actually any real value in them. This is not the case for most physical commodities like silver and other precious metals. These things have been valuable since the beginning of time, and that will likely never change.
How to get started
- Gain knowledge — Like with any investment, it’s crucial that you learn more about what it is you are investing in. Start with a silver investing guide such as this one from Investopedia.
- Choose a gold investing strategy — Decide how you want to invest in silver. Will it be through silver ETFs, silver stocks, or physical bars of silver?
- Start small — If this is your first time investing in silver, take your time. Don’t go buy 50 silver bullions just because they’re cheap. Start with one, or a couple. See how you like it. See the risks involved. And just get a feel for it. You can always invest in more later.
5. Invest in a franchise
McDonald’s, Chick-Fil-A, Starbucks, Taco Bell. These are all examples of franchise businesses. They are all owned by independent entrepreneurs who want to own a business, without much of the heavy lifting.
Owning a franchise allows you to take advantage of a brand’s recognition and customer base without ever having to spend years building up yours from scratch with a new business. By purchasing a franchise, you’ll have rights to the business’s name, logo, products, operation systems, and an individual location of your own.
Investing in a franchise removes a lot of the risk typically associated with starting a business. Am I saying owning a franchise is effortless? Of course not. For starters, you’ll typically need a large initial investment to own any recognizable franchise.
For example, the initial investment on a McDonald’s franchise starts at $1 million. A Dunkin’ franchise has an initial investment of $109,700 but can be as much as $1,637,700, and that’s not including the initial franchise fee.
Some franchises don’t have huge initial investment requirements. But, as you would expect, they are typically from brands that aren’t as recognizable. For instance, do you recognize the name Jan Pro? Probably not. It’s a commercial cleaning service that will cost you between $3,985 and $51,605 to start, excluding the initial franchise fee.
Not into cleaning? Owning a Jazzercise franchise will only cost you between $3,530 and $12,900. There are plenty of great franchise investment opportunities. If investing in a franchise seems appealing to you, you should take the time to do your research.
A franchise is still your personal business, even though you didn’t start the brand from scratch. Choose a franchise that you’ll be proud of owning for years to come, and don’t just settle for the cheapest franchise on the list.
How to get started
- Access your skills and interest — Choosing a franchise that aligns with your existing skills or interests will make success a lot easier. In other words, don’t open a dry cleaning franchise if you hate doing the laundry.
- Do your research — Find a franchise that fits all your requirements. Are you able to make the initial investment? Is this franchise something you would truly be proud of owning and operating? Take time to find a franchise that will actually work for your financial goals.
- Pick a franchise — Once you’ve decided on a franchise, take time to learn all the ins and outs of owning that particular franchise. There may be very specific rules and requirements that one franchise has, that another doesn’t.
6. Invest in art
Do you have millions of dollars to invest in paintings from the best artists of all time? No? No problem. Thanks to innovations like Masterworks.io, you can buy shares representing ownership of a painting.
For example, instead of spending $1,000,000 on a piece of art from Pablo Picasso, you can spend $200 to own a share of the artwork. This means you technically have ownership, but just of a small piece of it. According to Artprice, blue-chip artwork has outperformed the S&P 500 by more than 250% since 2000.
Investing in paintings is a lot like investing in rookie cards or signed memorabilia. These things provide a level of diversification to your portfolio that cannot be matched due to their low correlation with other commonly traded securities like stocks and bonds.
Although artwork doesn’t provide you with benefits found in other investments, such as dividends, the return on your investment can be substantial if you invest in shares of the right piece of art.
For example, a Jean-Michel Basquiat piece was originally purchased for $60,200 and sold for $6.6 million. That’s a 10,863.46% return on investment. For reference, the stock market averages about a 10% return before inflation.
Investing in art is a great alternative to investing in the stock market. But it’s important to keep in mind that the art industry can be just as volatile as the stock market. Art doesn’t only go up in price. There are periods where the art industry may experience a bear market, just like the stock market.
How to get started
The best way to get started investing in art is to sign up for Masterworks.io. Masterworks allows regular investors to diversify their portfolios with investments in artwork from history’s greatest artists.
7. Invest in memorabilia
Memorabilia are objects collected because of their historical interest. They’re typically associated with people or events. For example, rookie baseball cards and signed footballs are both examples of memorabilia. These items can increase in value substantially under the right circumstances.
For example, a Lebron James rookie card sold for $1.845 million in July 2020. The most expensive basketball card ever purchased. That same card would have cost you about $95,000 if you purchased it originally.
Of course, there is risk involved. It’s easy to look back at Lebron James’ career and say, “I wish I could have invested in that rookie card.” But who would have known that James would go on to be one of the greatest basketball players of all time? No one. There’s no way to tell the future.
What if James had a career-ending injury early in his career? That $95,000 card would have been worth far less than $95,000. The moral of the story is that, like with any investment, there are always risks. Make sure you are only investing in things you truly understand.
If you know basketball really well, then you might be able to see all the early signs of a great basketball player. This will give you confidence to invest in a rookie card or some other piece of memorabilia and hope that your analysis is correct.
How to get started
- Learn the game — Start by reading these rules to investing in memorabilia from CNBC. The article lays a foundation that you should follow when investing in memorabilia.
- Do your research — It’ll be important for you to have at least a basic understanding of the sport you intend on investing in. A lack of understanding could lead to you investing in memorabilia that isn’t all that memorable, such as a rookie who has a bad reputation in the league.
8. Invest in your own business
Of all the ways to invest your money, investing in your own business can have the biggest returns over a short period of time. Let’s put this claim into perspective with an example. Look at two people: Jeff Bezos and Warren Buffett.
Both billionaires. Both were very successful. Both created their wealth from the ground up. The difference? Jeff Bezos did it faster because of the success of Amazon—a business. It took Bezos about four years to reach a one billion dollar net worth. Meanwhile, it took Warren Buffett about 56 years.
Do you see the difference? Bezos was able to achieve greater financial success faster because he owned a business. Does this mean investing in the stock market is bad? Definitely not. But if you don’t want to invest in the stock market, investing in your own business is a great alternative.
Of course, this is just one example. However, WalletHub conducted a survey and found that the top 10% of U.S. income earners gained their wealth from business, farm, and/or self-employment income. In other words, the richest people in the U.S. have built their wealth by starting a business.
How to get started
- Start a business — If you don’t have a business yet, the first step would be to start one. Figure out what your passionate about—what drives you. For me, I have a passion for finance, and so starting a blog made sense. I can use my passion for finance to teach other people all while growing more myself. For you, it may not be a blog. It could be an app, or a food truck, or a clothing line. Whatever it is, you have to take action and just start.
- If you already have a business, invest in it — If you already have a business, you have to continue investing your time into building it and growing your revenue. Instead of using money to invest in the stock market, you can take that money and buy ads on Facebook, or hire someone on your team, or improve an existing product or service.
9. Invest in CDs
If you’re looking for a very safe stock market alternative, look no further than the certificate of deposit (CD). Investing in CDs won’t make you a fortune. However, if your goal is to preserve your wealth instead of growing it, then CDs are a good place to start.
It’s important to understand what exactly a CD is and how it works. CDs are not considered securities. Securities are financial assets that can be traded, like stocks and bonds. CDs cannot be traded. Instead, CDs are a type of savings account that hold a fixed amount of money, for a specified period of time, in exchange for a set amount of interest.
For example, you could invest $1,000 into a 1-year CD with an interest rate of 1%. After the year is up, you’ll get back your $1,000 investment, plus you’ll have earned $10 in interest bringing your total to $1,010.
Like with any investment, it’ll be important for you to take the time to learn more about CDs if you are considering using them as a stock market alternative. There are many different types of CDs to choose from, here’s a list of the primary options:
- Traditional CD
- Bump-up CD
- Step-up CD
- Liquid (or no-penalty) CD
- Zero-coupon CD
- Callable CD
- Brokered CD
- High-yield CD
- Jumbo CD
- IRA CD
- Add-on CD
- Foreign currency CD
Not every CD will be right for you. Take time to do your own research to figure out which option is best for you.
How to get started
The best way for you to start investing in CDs is to learn more about them. Check out this investing in CDs guide over at Investopedia.
10. Invest in wine
Investing in wine, you say? Yes. Believe it or not, because of the growing consumption of wine, the wine investing market is growing rapidly. Wine is one of those things that gets better with age. This isn’t true with many investments. But it’s true for wine, and one of the reasons why it’s a good investment outside of the stock market.
So, how exactly should you start investing in wine? Do you just run to the grocery store and pick up a bottle of wine? Not quite. And that’s where wine investing can get tricky. Unless you’re a wine expert, it could be challenging figuring out which wines are the best to invest in.
You see, you can’t just buy any bottle of wine. It has to be the right wine. And knowing which wine is the right one takes a lot of practice. And that’s where a website like Vinovest comes in. Vinovest lets you invest in wine by purchasing shares of wine stock.
There are many different types of wine stock, and some are even traded on major stock exchanges like the New York Stock Exchange. This is great for a number of reasons. The primary reason is that it keeps your portfolio liquid. What does that mean?
Well, imagine buying a physical bottle of wine as an investment. If hardship struck or you needed quick access to your money, you’re kind of stuck. It’s unlikely you’ll be able to sell your bottle of wine quickly.
However, by investing in wine stock, you still technically own the wine even if you don’t have a physical bottle. The only difference between real wine bottles and wine stock is that if you need to sell, you can do so quickly with wine stocks.
How to get started
To get started investing in wine, sign up for Vinovest. Vinovest is the world’s first wine investing platform. The minimum investment to open an account is $1,000.
11. Invest in an existing online business
Earlier in this article, we talked about investing in your own business as an alternative to the stock market. Now I want to talk about investing in an existing online business. An online business is any business that conducts its operations online. There are no physical stores, and there is usually no staff or very little overhead.
An existing online business is one that is already up and running, has a website, and is earning revenue. Even more, there’s usually already a solid foundation, a customer base, and even some domain authority. An example of this would be my website Elementor Market. I developed this business from the ground up, built a customer base, and a solid product offering.
I’ve actually gotten a few offers to acquire my online business, but none that I thought was worth considering. There are websites like Flippa that allow you to buy and sell online businesses, websites, and apps. Flippa is a great place to start.
If you can find an online business within your investing budget that also makes sense for you, then submit an offer.
How to get started
- Decide what type of business you want — What type of online business can you see yourself running? A blog? An ecommerce store? Decide what you want, this will help you narrow down your options.
- Head over to Flippa — Go to Flippa and browse through the hundreds of online businesses that are for sale. Remember, the prices that you see aren’t set in stone. You can negotiate as you see fit.
- Be prepared to work — Although you are buying an established business, it doesn’t mean you’ll have a free ride. The business will still require consistent effort to continue growing.
12. Invest in bonds
Bonds come in many different shapes and sizes. For example, here are four of the primary types of bonds:
- Corporate bonds
- Government bonds
- Municipal bonds
- Agency bonds
And within each of these bond types, there are even more bond types. I have a complete guide on bond investing that you should check out if you want to learn more.
In any case, bonds are a very safe alternative to the stock market. You can buy individual bonds from your broker or the U.S. Treasury through TreasuryDirect.gov. If you aren’t interested in buying individual bonds, you can buy shares of a bond ETF. The biggest advantage of investing in bond ETFs is diversification and liquidity.
Since ETFs are traded on the stock market like stocks, you can buy and sell them throughout the day. This is not as easy with individual bonds. Although you can sell individual bonds on the secondary bond market, it can sometimes take a while to find a buyer.
Now, ETFs do technically trade on the stock market, but they’re still something to consider if you want to invest in bonds instead of stocks. Bond ETFs provide your portfolio with a level of diversification that would otherwise be hard to accomplish buying individual bonds.
When you buy one bond ETF, you are exposing your portfolio to hundreds of single bonds that you otherwise wouldn’t have easy access to.
How to get started
The best way to start investing in bonds is to read our bond guide for beginners. This guide will teach you everything you need to know about bonds, including learning the basics all the way to making your first bond purchase.
13. Invest in peer-to-peer loans
Peer-to-peer lending, also called P2P lending or crowdlending, has made waves over the past decade. P2P lending lets individual investors like yourself loan money to other people. In this way, you are sort of acting like a bank.
When a bank loans a person money, they are loaning the money with interest on top. When the borrower pays back the loan, the bank not only gets its original investment returned, but also gets interest on top. They’ve earned a profit.
This is the idea behind P2P lending—borrowers can come to you to loan money instead of going to a bank. But, why would an individual want to loan money from you opposed to a bank? There are a few reasons. The biggest reason is interest rates.
It’s a lot cheaper to loan money from individual lenders through a P2P service than it is to loan money from a big bank. Likewise, depending on the individual’s credit score, banks may not even want to loan money to the person. So what does the person do? They go to a P2P service.
Of course, this creates some risk from the investor’s standpoint. Let’s say for example you lend money to an individual with a bad credit score. Sure, you’ll get more interest on your loan because of their low credit score, but you’re also at more risk of losing your investment if the borrower defaults on the loan.
In saying that, there are certain strategies that you can use to limit your losses when using peer-to-peer lending services. For example, you shouldn’t fund an entire loan for someone. Instead, most P2P services sell what’s called Notes. Notes are pieces of a loan. A single loan is broken up into many Notes for many investors to fund.
By investing in individual Notes, you can reduce your risk of losing a lot of money if a loan defaults. Just like you want to diversify your stock portfolio, in the same way, you should diversify your P2P portfolio.
How to get started
- Educate yourself — It’s imperative that you first learn all you can about P2P investing. If you jump in blindly, you’ll inevitably make costly mistakes. I recommend heading over to LendingClub’s education center and reading all you can about P2P investing.
- Sign up for a P2P service — There are plenty of great P2P services to choose from, such as LendingClub, Prosper, Peerform, and Upstart.
As you can see, there are plenty of alternatives to investing in the stock market.
The stock market has been a cornerstone of building wealth in the U.S. for over 100 years. However, it’s not the only way to build wealth—far from it.
Many of the stock market alternatives on this list have also built wealth for thousands of people. Why not you?
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