Avoid the Stock Market – Look at These 5 Alternatives Instead
The stock market is a scary place, especially for those that don’t have training and experience. Even for those that do know what they’re doing, it can prove daunting and stressful. There’s a reason why traders burn out after a few years.
But are there any alternatives, which can offer decent returns to help your investments bear fruit? Prepare to be enlightened.
So Let’s Talk Bonds
One of the more traditionally favoured investment types, bonds are primarily turned to in times of economic turmoil because they’re relatively low risk. A type of loan that is provided to a government or blue-chip company – bonds require the borrower to pay fixed interest rates for a set period of time. Whilst they may give you a much lower return than the likes of peer to peer lending, bonds are considered a ‘safer’ alternative due to the credit worthiness of the borrower and are thought as being able to deliver more stable returns. It is important to remember, however, that the value of a bond will broadly correlate with the interest rates set by the bank of England.
Generally speaking, if interest rates go up, the value of bonds will go down. It can be understood as an inverse relationship. Let’s run through a quick example. If a bond promises to pay 6% interest annually and the market rate is 6%, then the bond’s price should be the same as the bond’s maturity value. However, if the market rate increases to 7% and an existing bond is promising only to pay 6%, the 6% bond will not be worth its face value or maturity value. For it to be sold, the price will have to be less than the maturity amount. Alternatively, if the market rates drop to 5%, an existing bond that is promising to pay 6% will prove to be a very attractive proposition. Because of this, the bond will sell for more than its maturity value. To summarise, all you need to know is that an existing bond’s price or present value moves in the opposite direction to market interest rates:
-Bond prices will go up when interest rates go down
-Bond prices will go down when interest rates go up
Commodity Based Assets
More of a ‘specialist’ sort of asset, commodity-based assets are particular to a certain industry or sector. This type of asset is quite diverse and varied as the list below.
Although on a superficial level these might seem like strange things to invest in, however, rare stamps and the like can actually fetch a pretty penny. In fact, on the subject of stamps, some private investors have ready-made portfolios that are valued at as much as £10,000! So why does it make sense to invest in things like stamps? Well with stamps and other commodity-based assets, they’re completely unrelated to stocks and shares. This being the case, if something was to go wrong with your stocks and shares investment, your commodity-based assets wouldn’t necessarily experience any knock-on effects. By investing in unrelated assets, you are taking part in (whether you know it or not) what’s known as effective diversification.
However, investing in stamps, wine, gold or any commodity-based asset does not produce any sort of income. To make any money you are dependent on which way the market goes. They are highly speculative investments. Buying and selling at the right time is key… and, if it was that easy, everyone would be doing it.
Be Your Own Boss
Whilst you can earn a perfectly good wage from a typical 9-5 job, the fierce competition at the top will always keep those earning megabucks to a bare minimum. When you own a business on the other hand, the potential to earn larger sums of money becomes much more likely. What could be more rewarding than investing in your own business and being your own boss? into a business, you can earn a very decent passive income unconnected to the hours you put in and build a valuable asset that can be sold on at a later point.
That being said, it’s not all rainbows and unicorns. According to the Small Business Association (SBA), 30% of new businesses fail during the first two years of being open, 50% during the first five years and 66% during the first 10 years. Businesses fail for many different reasons ranging to anything from a lack of market research, a poor business plan, or even lacklustre marketing.
Equity Based Investments
In investment terms, equity can simply be understood as the process of investing money into a business, project (or otherwise) and receiving a share in the company and its assets in return. Whilst equity–based investments can prove fruitful, they do pose one problem in particular. We’re talking about dilution. Let‘s say for example, that you have a portion of shares invested in a small start-up business. A few months down the line, the new start-up has developed a ground–breaking new product that’s going to revolutionise its respective industry. As a result, the company has started to receive a lot of interest from investors looking to capitalise on their success.
One large investor in particular has shown an interest in the company and is interested in buying a large proportion of shares. In buying a large amount of shares, this investor is effectively reducing your stake in the business. Just like that your 0.7% share could become 0.0007%. And whilst there are a few special protections you can get prior to investing, getting them is easier said than done. A lot of hassle, for a potentially diminishing reward.
A Brighter Future With Peer to Peer Lending
P2P lending has become over the last 12 years a popular alternative to stock marketing investing. Whilst there are, of course, risks to be considered, the returns are attractive and stable, with significantly less risk and volatility involved in stock picking – especially if the loans are secured against assets such as the property, by way of a first legal charge. P2P lending can offer all sorts of benefits to a would-be investor.
Firstly, if everything did go to plan, it could prove to be lucrative (especially when factoring in the effects of compound interest). Secondly, it removes the need for banks and gives everyday people the opportunity to lend their money to other people- sometimes for a worthy cause. This could be something as simple as helping a farmer in a third world country by buying the equipment that they need to maintain land and acquire livestock. If the farmer is successful and experiences sustainable growth, you may be entitled to a small financial return (not to mention the hearty helping of satisfaction that comes courtesy of helping someone in need!). Alternatively, you can lend money secured against property or other tangible assets such as a person’s car or a company’s machinery. The world of peer to peer lending is wide ranging offering a variety of investments suitable to different kinds of investors.