If you’re new to investing, you may be hesitant to get involved with stocks. You probably have a perception of the volatility and risk, and stocks can be an intimidating arena to the inexperienced. While investments that rely on the stock market can be great investment vehicles—especially for the long haul—there are plenty of ways of investing without playing the stock market.
Of course, that doesn’t mean you’re taking on less risk. Risk and potential rewards are always tied together in any form of investment; the greater the potential yields, the greater the risk. But if you find stocks confusing and are more able to understand other types of investments, you’re always better off the better you understand an investment vehicle.
So, here are some ideas for investing without playing the stock market.
Ways to Invest that Don’t Involve the Stock Market
- Peer-to-peer lending – This involves loaning money to others and collecting interest. Because you can choose to invest even minimal amounts (depending on the site or app you use), this is one of our recommended ways to start investing with a small amount of money.
- Real estate – There are numerous ways to invest in real estate, and most of them don’t involve the stock market. Some, like buying rental properties and flipping houses, require a significant amount of money to get started. But others, such as real estate investment trusts (REITs) and renting out a spare room, are accessible to people without large sums to work with.
- Savings bonds – Savings bonds are relatively safe because they’re paid back by the federal government. They offer stable interest rates, too. You can purchase Series EE bonds, which have a fixed interest rate, or you can buy Series I bonds, which pay an interest rate partially based on inflation.
- Municipal bonds – These are also relatively safe because they’re paid back by state, city, or municipal governments that borrow money. They usually pay lower interest rates than other types of bonds, but interest earnings are exempt from federal taxes (and often state and local taxes, too).
- Corporate bonds – These are different from stocks because they pay interest and aren’t tied to the company’s performance, and they don’t provide ownership in the company. Corporate bonds tend to offer higher interest rates than government-issued bonds, with the rate being tied to the risk of the borrowing company defaulting on the debt. They’re fairly safe, but if the company defaults or declares bankruptcy, you lose any money you’re still owed.
- Establish passive income – Passive income refers to revenue streams that keep flowing without any (or significant) ongoing effort on your part once they’re established. Here are a number of common ways of generating passive income.
- Annuities – Basically, you make a payment up front in return for a series of future annual payments over a particular period of time (often your lifetime) from an insurance company. There are three main types—fixed, variable, and indexed—with the difference being how your payments are determined. Just watch out for high fees and broker commissions if you get involved with annuities.
- Certificates of deposit – Certificates of deposit (CDs) are bank accounts paying a fixed interest rate for a specific period of time. They’re relatively safe (they’re FDIC protected and guaranteed not to lose value), and generally offer a higher return than savings accounts or money market accounts.
- Commodities futures – This involves buying and selling contracts for future commodities (like crops or valuable metals). It carries a considerable amount of risk though, with the potential to make or lose a lot of money. It’s a pretty complicated investment vehicle, too. So, we’re putting it out there as one of the well-known ways of investing without playing the stock market, but it’s not for beginners or those who shy away from risk and volatility.
- Cryptocurrency – We’re adding this to the list because it’s a growing arena for investing outside the stock market, and some people are doing very well with it. But if you’re averse to risk and high volatility, this is definitely not an investment vehicle for you.
