A Plain English Guide to Alternative Investments to the Stock Market

Additional, Non-Stock Market Investments

You may want to diversify your investment strategy beyond the regular stock markets, without wanting to get into risky securities like penny stocks or ForEX, more complex securities like options & derivatives, or have to deal with commodity futures (like oil, corn and copper).

The most common, non-stock market investments is, in one form or another, property - i.e. something you can physically touch, have or build a house on, put in your pocket, hold in your hand, put on the wall, etc.

The main disadvantage common to non-mutual fund investments, including owning individual stocks and bonds, is liquidity. You may own a piece of prime real-estate, or a block of desired stock, but what will happen if you need to liquidate in the next few days?

If you understand the risk of not being able to liquidate as fast as you need (or ever), property can be a way to diversify your wealth & add to your net worth.

1. Real Estate - real property can be a valuable long term investment. One thing that should be pointed out right away is that your primary residence should not be thought of as an investment even though you do build equity and it's value may increase over time and contribute to your net worth.

Things to consider when looking at real estate:

  • As the housing crash of 2007 − 2008 has pointed out, growth of your equity is not guaranteed, and it may be extremely difficult to sell when you want to sell. You should probably plan on a 2 year sale window, but it may take longer.
  • You should be clear in your goals with real estate: do you want rental income? Do you want raw land?

2. Gold, diamonds & other precious metals and gems:

  • Gold and other markets for precious metals and gems experience volatility like other markets. Like the stock markets & real estate, growth is not guaranteed.
  • Where are you going to store these items? Gems are small and easy to conceal in a safety deposit box or bury in the walls or your yard, but what are you going to do with a stockpile of gold?
  • Liquidity should be a concern. The programs on TV that offer to convert your gold into cash advertise for a reason - there's a distinct possibility they're not going to give you the full value of your gold.
  • The gold and diamond markets are controlled by a few companies and people. There's frequent speculation that the markets are falsely inflated. This may or may not be true, but should be considered.
  • Technology is rapidly advancing in the area of man made diamonds. If man made diamonds reach a point where they're indistinguishable from diamonds found in nature, the diamond market could be negatively affected.
  • Blood diamonds.

3. Art, antiques and other collectables:

  • Liquidity is, again, the biggest problem. You may have a really amazing piece of art hanging on the wall, but are there buyers if you want to sell it?
  • Will the collectable appreciate in value? If so, will it match the rate of inflation (most collectables don't)? That antique table may be beautiful, but will it increase in value or will it end up being sold for pennies on the dollar at an estate sale?
  • Collectables should generally be purchased because you like them and want to own and enjoy them, not as part of an investment plan.

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