Investing in stocks is one of the best long term investments you can make, but it’s not the only one and it’s certainly not for the faint of heart.
The past 14 years has seen the US economy slug through two major recessions that tested the resolve of even seasoned investors. From 2000 – 2002 the S&P 500 lost 46% of it’s value, and just 5 years later from 2007 – 2009 as the market was still recovering it took an even bigger setback losing 56% of it’s value.
Even if you love stocks, there’s no doubt its a wise choice to diversify in times like these to make sure you don’t feel like jumping off a cliff.
Check out these 5 alternative investing methods that can make a great addition to any portfolio.
1. Peer to Peer Lending
Peer to peer lending (P2P) is the new kid on the investing block, but has been gaining steam quickly and for good reasons too. Lending platforms like Prosper.com are growing quickly with over $150 million of new loans being funded on the site every month.
The concept behind P2P is simple, and it’s exactly as it’s name suggests. P2P platforms facilitate borrowing and lending between consumers. Consumer A can get a fixed interest rate loan directly from consumer B (along with many other consumers) in order to consolidate debt or make other major purchases.
It’s a win-win situation for both the borrower, and the lender. Borrowers enjoy much lower interest rates than what credit cards offer, and lenders reap higher returns than if their money were sitting in a bank.
As a lender you can browse through loan requests and invest only in the ones that fit your criteria. Borrowers are thoroughly vetted and their financial situation is transparently posted within their listing. You’ll be able to see everything from their credit score, past delinquencies, personal income, and even a lender risk rating calculated by Prosper based on the borrower’s complete financial picture.
Setting up a new lender account is simple, and the minimum balance is only $50 which makes testing the waters really easy to do.
Ever wonder how much money you could earn if you could buy and sell the exact same stocks at the exact same time as a seasoned, professional investor?
Well, that’s exactly what Covestor allows you to do. It’s a stock mirroring service that syncs your trading account to a professional investor’s and automatically mirrors their stock trades.
Right now there’s around 150 investors listed on the Covestor platform whose account you can mirror, and some are hugely successful too. Top investors on the platform boast 12 month returns of 30%, 40%, and even +50%!
As with any investment, it’s critically important to conduct thorough research on an investor before deciding to mirror their trades, and Covestor does a pretty good job of providing you with the information you’ll need to do this. You can even see every single trade they’ve made since joining the Covestor platform.
While stock mirroring is a great concept, it’s always important to keep a close eye on your account like you do the rest of your portfolio. No investor is superhuman, and they’re bound to make mistakes just like anyone else, so if you see them make too many trades you don’t agree with with you can stop mirroring them at any time.
The minimum starting balance is $10,000 which puts Covestor out of reach for most new investors, but its certainly a compelling opportunity for investors with more funds to invest and those seeking diversification options.
REIT stands for Real Estate Investment Trust, and is a great addition to any investing portfolio. They’re essentially corporations that own and operate income producing real estate assets.
What does that mean?
Well, stores like Best Buy, Staples, and Walgreens didn’t actually construct the building they’re in, nor do they own it. They’re too focused on their retail business model to add real estate holdings to the mix. These franchises rent their buildings just like a florist rents space in a local strip mall. The actual builders, and owners of the property are large Real Estate corporations, or REIT’s.
Take Agree Realty Corporation (ticker ADC) as an example. They’re a REIT that owns commercial real estate all around the US that rents to stores like Lowes, Walmart, Sears, Pier 1 Imports, and more. Check out a full list of their properties here.
Investing in REIT’s is easy to do. They’re traded on the stock exchange just like every major stock.
4. Precious Metals
During the 2007 recession, investing in precious metals was the next big thing. From 2007 – 2011 the price of an ounce of gold skyrocketed from $600 to a peak of $1,800, all while the stock market lost more than half it’s value.
Pretty appealing, eh?
The price of gold, and other precious metals have since fallen from their recessionary highs, but had you invested during that period (and others like it) you would’ve reaped healthy returns, and also stabilized your overall portfolio as stocks prices were dropping fast.
While it’s not recommended to put a large percentage of your portfolio into precious metals, it can be a wise strategy during recessions because commodities and precious metals tend to move in the opposite direction as the stock market.
Bonds are one of the lowest returning forms of investments, but with low returns also comes much lower risk. For this reason they can be quite attractive for soon-to-be retirees, or those who simply can’t stomach the highs and lows of the stock market.
Bonds are basically IOUs with you serving as the bank. You essentially loan a company, city, or government organization money and the bond serves as a promissory note to pay you back in full at a predetermined interest rate.
They can be bought for lengths of a few months all the way up to 30 years. The longer the length, the higher the return, but because returns are quite low as compared to other potential investments most investors don’t bother with them much until they near retirement.
Government bonds can be purchased through TreasuryDirect, and corporate bonds through various online brokers.