8 investing ideas that avoid the stock market

This article is by staff writer Jeff Rose, CFP. Be sure to check Jeff's latest project Operation: #investNOW where he's encouraging 1 million to start investing in themselves.

Investing in the stock market requires resolve and a long-term vision. In fact, looking back over the last 14 years or so -- a relatively short period of time -- the stock market tested the resolve of many. The S&P 500 shed 46 percent from August 25, 2000, to October 4, 2002. Just five years later, during the housing bust, the S&P 500 lost 56 percent of its value from October 12, 2007, to March 6, 2009.

Even if you LOVE to invest in the stock market, the last 14 years might shake your confidence. I always thought stock investments were supposed to gain about 9 percent per year. What happened? And what other options are out there? Do you have to stick to stock mutual funds and ETFs? Not quite.

Here are eight investing ideas that avoid the stock market.

1. Precious Metals

During the Great Recession, precious metal commodities like gold and silver were all the rage. As the stock market lost more than 50 percent of its value, gold and silver started a monumental rise in price. Gold went from around $600 per ounce in 2007 to peak at $1,900 per ounce in 2011.

The prices of the most popular commodities have since fallen from their peak, but had you invested in precious metals for that period of time (and others like it in history), you would have netted a healthy profit for your portfolio.

Relying solely on precious metals for your portfolio is extremely risky, though, and I wouldn't suggest it. However, commodities do tend to act in an opposite manner to the stock market, and using precious metals as a hedge against volatility can be a great strategy.

2. Peer-to-Peer Lending

P2P lending is one of my favorite alternative investments. It is the ultimate win-win for consumers, in my humble opinion. Consumer A gets a loan from Consumer B (and typically a large group of other investing consumers). Consumer A gets to pay off high-interest-rate-credit-card debt at 20 percent with a personal loan that has a fixed term, a fixed interest rate of 10 percent, and a fixed payment. Consumer B and his friends get to enjoy a much higher rate of return than they would be able to reach with cash sitting in the bank. Both sides win: The borrower gets a lower rate and a fixed term to pay off the loan while the lender enjoys a healthy rate of return.

It's true that some see peer-to-peer lending as a risky asset class because you are relying on strangers to pay the loan back. As with any type of investing, you don't want to put all your eggs into one basket. Diversifying your portfolio of loans helps tremendously when you do experience a loan that goes unpaid. (Plus, P2P websites like Lending Club and Prosper have collection methods that kick in on borrowers who miss payments.)

I've become so enamored with peer-to-peer lending that I decided to embark on a little experiment last year. I divvied up about half of my Solo 401k contribution into both Lending Club and Prosper. The goal of the experiment was twofold:
  1. See how much interest I could make with this investment strategy.
  2. Compare the two companies to see which one provided better earnings.

Overall, I was pleased with the results. Both companies netted double-digit returns for me, and I plan to add more money into these investments.

3. Owning a Business

Hands down, I think the alternative investment with the highest potential rate of return is running your own business. This isn't without risk -- the vast majority of small businesses die within 5 years -- but if you can outlast the statistics, it can be extremely rewarding.

I used to work for a company providing financial advisory services. I took a huge leap of faith, started my own independent advisory business, and started blogging. My financial planning business has thrived and my blog has earned well over six figures since I started.

The beautiful thing about running a small business is not only are you the boss, but you can grow and maintain it as much as you want. Maybe you love your full-time job but you want to try out a new skill. Spend your nights and weekends trying it out, earn some extra dough, and keep working full time. Even a little side income can make a huge difference in your financial life, and when you don't have time to maintain it, then slow down and focus on other priorities.

4. Real Estate

If you're interested in…

-significant cash flow

-leveraging other people's money

-enjoying large tax writeoffs

...then real estate can be a great choice.

Let me be clear so I don't sound like a late night informercial: Real estate investing is difficult. The learning curve is significant. When you first start, you *are* going to be putting all of your eggs into one basket because you will only have one property to rent out or flip. A previous GRS writer shared his experience of rushing into real estate investing.

Many people have lost their shirts trying to get rich with real estate. Even Dave Ramsey went bankrupt based on a series of really poor real estate investments at the start of his career.

Amid all the horror stories about crazy tenants, poor cash flow, and something always breaking there is some significant income to be had from real estate investing. What's better is you don't have to put 100 percent down on a house. You can usually get away with 25 percent to 35 percent as a down payment and let the bank fund the rest of the purchase. This leverage means you can leave more money in reserve for the inevitable issues that pop up or to expand into a larger number of properties faster.

5. Bonds

Nearing retirement? You'll want to cut back on your stock allocation and put some of those funds into bonds. You might associate bonds with the stock market because they are so commonly paired with stocks in a portfolio, but technically bonds are traded on the bond market. You won't generate sky-high returns here, but you will also cut out a majority of the volatility you get from stocks. Very few bond investments have lost 50 percent of their value for two years and then returned 100 percent the next four years.

Investing in individual bonds carries more risk because they are not diversified. If the company that issues the bond goes under, you might not get your principal investment back. However, bond ETFs and mutual funds can provide the non-stock exposure of bonds with the added benefit of diversification.

6. Certificates of Deposit

The lowly certificate of deposit or CD. Simple. Basic. Low return.

And sometimes. . . just what the doctor ordered.

A CD is a simple financial product where you hand over some cash to a bank or credit union for a set period of time and a set interest rate. If you have less than $250,000 in total assets at that bank or credit union -- across *all* accounts -- your investment principal is guaranteed by the FDIC. You literally cannot lose the principal balance if you use this method.

The upside of CDs is stability and guarantee. The downside is, at least right now, inflation will be eating away at your principal balance. Certificate of deposit rates are extremely low due to the Federal Reserve's monetary policies. While you can find CDs with a 1 percent interest rate for 12 months, if inflation runs at 2 percent that year, you have effectively lost money. Despite the plethora of low CD rates, there are some gems out there. PenFed Credit Union has a five-year CD with a 3.04 percent interest rate. That's a long time to lock in your money; but inflation averages about 3 percent per year, so at least you wouldn't be losing money.

7. Annuities

Ewww. . . annuities. Don't all personal finance bloggers hate annuities?

Listen, I get it. Annuities CAN be bad. Terrible, in fact. Fees, confusing contract terms, and an encyclopedia of fine print.

Most people don't realize there are several types of annuities: fixed, immediate, variable, equity-indexed, and several more.

Hear me out. The right annuity with the right, sensible, un-scammy terms can be a solid foundation for a retirement portfolio.

In fact, Mike Piper a previous GRS contributor, shared how you can create a lifetime income by purchasing the right annuity.

But like any investment, tread with caution. And be wary of commission-hungry, shady advisers just looking to make a sell vs. matching you with an investment that works toward your financial goals.

8. Yourself

Last but certainly not least, investing in yourself can pay dramatic dividends. I have personally done this in a variety of ways. Besides getting my CFP® certification, the other major investment I made in myself was signing up for a coaching program.

I can't blame you if you're skeptical about coaching programs. I was too. It's been more three years since I signed up for The Strategic Coaching program and it has literally been the best investment I ever made. The mentoring has allowed me to grow my business significantly, and the return on what I paid has been tremendous. It makes a 9 percent return in the stock market look like nothing.

My coaching program is tailored specifically toward entrepreneurs, so it might not be a good fit for you. Still there are several other types of coaching programs out there that might be a good fit.

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