When people think of investing, they usually start by looking at the stock market. But there are lots of other ways to invest your savings than just stocks, or even mutual funds and exchange-traded funds. In fact, you can help diversify your portfolio by including investments that aren’t correlated to how the stock market performs.
Whether you can’t get over your fear of investing in stocks or you’re just wanting to diversify your portfolio, read on to learn about alternative investment options to put your money to work for you. The choices run the gamut from very safe to highly volatile, so do your homework before you invest.
Click the find out how to invest when you’re afraid of the stock market.
1. Real Estate Investment Trusts
Investors who are looking for ways to invest in a range of real estate properties but don’t have the cash to buy them all themselves should consider a real estate investment trust, or REIT. REITs invest in a range of real estate, including housing, commercial buildings, hotels and warehouses, and then distribute the rental proceeds to the owners. This lets you include real estate in your portfolio even if you don’t have a couple million dollars sitting around to buy property yourself.
2. Peer-to-Peer Lending
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 is requesting, and then get repaid with interest as the loan is paid back. But you lose your investment if the borrower defaults. By investing small amounts in a range of notes, you reduce your risk. If you have just one note and the borrower defaults, you’ve lost everything. But if you have 100 small notes, several borrowers could default and you would still come out ahead.
3. Savings Bonds
Check out savings bonds if you’re looking for things to invest in that pay stable interest rates. Savings bonds are offered by the federal government and pay interest over a specified period of time. They’re very low risk because they’re paid by the government, so the only way you could lose your money is if the government defaulted on its debts. You can buy either 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.
Learn More: What Is a Savings Bond?
You can invest in gold in a variety of ways, including gold bullion, gold coins, gold mining companies and mutual funds that invest in gold. Anyone considering buying bullion or coins directly should make sure to have a safe place to store the investment like a safe deposit box at a bank.
The Federal Trade Commission advises that gold prices can go up and down, and that you should investigate any company that you use to invest in gold before you buy. Though it can sound like an added bonus if the company you use will store the gold securely for you, it’s especially important to make sure you’re dealing with a reputable company if you aren’t taking physical custody of the gold you are buying.
5. Certificates of Deposit
Certificates of deposit are bank accounts that offer a fixed rate of interest for a specific period of time and are protected by the Federal Deposit Insurance Corporation in case the bank goes out of business. But in the event you take out your money before the term ends, you will usually pay an early withdrawal penalty. The interest rates typically won’t match long-term returns in the stock market, but they’re guaranteed not to lose value.
6. Corporate Bonds
When companies need to borrow money, they often issue bonds that you can buy. A bond pays interest over a set period of time, and then it pays the face value of the bond when it matures. Owning a company’s bond doesn’t mean you have any ownership of the company, so you won’t make extra money if the company does really well. But in the event the company has a down year, there’s no change in the amount of interest you’re owed, so your returns are more predictable than stocks.
7. Commodities Futures
You can buy and sell contracts for future commodities including foodstuffs like corn or grain and metals like copper. 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.
8. Vacation Rentals
Buying a vacation home to use as a rental property most of the year when you’re not traveling can help you grow your wealth, said Robert Stephens, general manager of Avalara MyLodgeTax. You can use it when you want to take a trip, and then rent it out to cover your costs while the real estate appreciates — hopefully. Though vacation rental websites can make management easier, the homes aren’t very liquid, so in the event you need your money out in a pinch, you might have to wait to find a buyer.
Click to learn which cities are the best and worst to own investment property.
Cryptocurrencies are non-centralized, digital currencies gaining popularity around the world. Bitcoin is the most well-known cryptocurrency, but it’s certainly not the only option. But cryptos are very volatile and the price swings are not for the faint of heart, cautioned J.R. Duren, a personal finance expert at HighYa.com.
10. Municipal Bonds
City and state governments also issue bonds to raise money for projects such as building new schools or highways. The interest rates vary depending on the risk of the borrower defaulting — the higher the risk, the higher the interest rates. 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.
11. Private Equity Funds
Private equity funds pool investors’ money under the control of a manager who uses the money to invest in companies in a management capacity to help them grow. 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. In addition, direct investment in private equity funds is generally limited to accredited investors, so you might not qualify to invest if your net worth or income isn’t high enough.
12. Venture Capital
Venture capital investing involves loaning money to business start-ups to help them get off the ground. Because these investments are risky, you must be an accredited investor — or invest through a crowdfunding platform like Indiegogo — to participate.
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.