I hate stocks.
Well, I don’t really hate them. But they’ve caused me a ton of grief in the past, and thus, going forward with any “investing” I do, I am going to avoid stocks, mutual funds, forex, really anything that could be traded in the short term. Just not my cup of tea.
That leaves me looking at alternative investments for building up my networth. I currently am keeping a good chunk of change in my SmartyPig account, and that earns 2.01%, but I think I can do better and still sleep at night. I used to live for a risky investment, now I want to avoid that feeling if at all possible.
Possible Alternative Investment Options
-Land
-Real Estate
-Gold (nope, too risky in my view)
-Businesses (buying a franchise or small business, etc)
-Social Lending (Lending Club, Prosper, etc)
-Fine Art
-Wine
-Classic Cars
-Municipal Bonds
-TIPS (Treasury Inflation-Protected Securities)
-Fixed Annuities
Lets take a look into these, one by one, and see if any might be appropriate for me (and you!) in 2010.
Land
They aren’t making any more of this. But is land really a good investment? As with many investments, it looks like, “it depends”. Land tends to be very illiquid (which is OK for me to some extent) and can take a long time to sell. But I wouldn’t be looking to sell the land anytime soon. If anything, I’d want to buy a piece of land I could one day build a house on out in the country. It’s a crazy dream of mine, but I’ve always wanted like 5-10 acres for a small ranch, with some riverfront.
Cost? $250,000 in an area I would want to buy.
Risk: Medium
I could see myself making an “investment” in land when I am older, but right now it doesn’t make sense. No matter how cool it would be to own my own patch of dirt.
Real Estate
The classic story of the down on their luck person who gets into “real estate” investing and makes it big is so cliché I hate even bringing it up.
While owning and renting out real estate might sound like a blast for some people, I have little desire to be a landlord. I’m not super handy, and while I would like to learn to fix up a house, I just don’t have the time right now.
Risk: Medium
While I may purchase a home again someday, my credit history is pretty beat up, so I don’t see this as an option until at least 2011.
Gold
Gold prices have gone nuts in the past few years, and I think buying gold right now would be about as risky of an investment as I could find. So I’m going to stay away. Gold bugs will say that Gold will always hold it’s value, but with the run up it’s had, it’s just too risky for my blood
Risk: High
Buying a Business
This is one that intrigues me a bit. I have quite a bit of business experience now, my current software biz has 6 employees now, and I’ve finally figured alot of the operations side of running a business out.
Buying say a local restaurant definitely appeals to me. But, having not ever run a restaurant, I’d probably pick something else, but you get the idea. I know the failure rates for businesses, but I think there is opportunity here that I would really enjoy.
Risk: High
If I could find the right type of small business, that was local to where I was, and I could run as an absentee owner (ie, have a store manager run the day-to-day operations), I might consider it.
Social Lending
I’m a big fan of social lending. I have a small account funded at Lending Club, and so far, my returns have been great, just over 8%. Heck, I even worked part-time at Lending Club last year, which was a blast.
The two major players in the social lending sphere are Lending Club and Prosper.
Risk: Medium
For me, I need to start putting more of my cash reserve into Lending Club, maybe even 20%. I feel confident in the Lending Club team and their processes to keep defaults low.
Fine Art
I read up quite a bit on “investing in art” and it seems very, very risky. Sure, the market has had some great returns, but it seems mostly on very high-end dead artists stuff. And even still, the market seems to depend on the wealthy too much.
I like investments that I have some control over. Art is not for me. Not liquid at all, and I’d rather just support some local artist and buy something I really really enjoy.
Risk: High
Wine
Here is one where I think for some people (wine lovers!), this might be worth looking into.
Me?
I just don’t like alcohol all that much. I rarely drink wine, and don’t particularly like it. So, investing in wine is out for me. But for those who invest in Bordeaux wines, apparently the risk isn’t terrible. Also the New York Times thinks now is the time to invest….
Risk: High
Don’t get drunk on this investment!
Classic Cars
This is another alternative investment option that seems unlikely to payoff unless you know the niche well. I know nothing about cars, but I’m sure there are lots of people out there who could identify value in classic cars. Just not for me.
At least with this type of “investment” like wine, you get something you can be proud of. But that’s not a good reason to invest in something. I want to invest in numbers, not the number of waves I get out on a sunday drive.
Risk: Medium
Municipal Bonds
Muni-Bonds are bonds issued by local governments to fund anything from schools to roads to a general budget. Looking up some Municpal bonds in Washington State I found a bunch for some of the Ports around here as well as many of the counties. Most yields were in the 5% range on average.
Muni-Bonds are often non-taxable, which is nice, especially if you are in a higher tax bracket.
Risk: Low-High (depends on the Bond Rating)
This is something I would consider investing in. I think a well diversified muni-bond portfolio could be a pretty low-risk investment, but it’s something I want to do some more research on in 2010.
TIPS
TIPS are Treasury Inflation-Protected Securities, which, are pretty much exactly what they sound like. Government sold by Treasury Direct (or your broker), TIPS are issued in 5, 10, and 30 year terms and payout interest twice a year. Interest is subject to federal income tax, but not state or local income taxes.
If inflation occurs, your twice yearly interest payment will increase (market to the Consumer Price Index). Likewise if deflation occurs.
Risk: Low
These look interesting, but the yields are not great right now (shocker) with the 10 year yield near 1%. Ouch. I’d rather just put my money in a high yield account.
Annuities
Oh boy. Now we are getting into some controversial stuff. Depending on who you ask, Annuities can be a great income stream, or an absolute ripoff. The advantages seem to be that you get a fixed return…that’s nice. But at what cost? The high costs of annuities and the general complexity of them are enough to keep me away
Risk: Medium
Alternative Alternatives?
Staying away from stocks, mutual fund, et. all….what other alternative investments might be worth pursuing? Alpacas? Beanie Babies? : )
No really, what can you think of that is outside the box?
{ 13 comments… read them below or add one }
I thought land/real estate would be considered the same. That probably is the safest bet since there is only so much land out there. But very costly to get into. If I had the money I would love to buy property and rent it out.
Coins
Oh, yeah that’s a good one. Although, if you say investment quality gold coins, then that is basically gold. But rare coins, sure…
My jaw hit the floor when I first read this post. Then I realized that you probably weren’t too serious about “investing” your money. You are just keeping the blog interesting.
If you were serious, I’d have to point out that you haven’t learned the right lesson. You want to avoid the stock market, but don’t you know someone who’s lost all their money on many of these other investments? We all now know that real estate can be a big loser! I’ve met people who have lost their shirts on Beanie Babies, alpacas, and collectibles. With the possible exception of TIPS, everything on the list is speculative. Whether high risk or low, everything on this list is a gamble, in one form or another. I worry that you got the bug again.
Your money would be better served paying off any remaining student loans, etc. Paying off these loans would be equal to earning the equivalent interest on some investment (not exactly, but you get the point.) Investments are a good idea for people with a high net worth — after you have a high net worth, not as a method to build net worth.
I’ve known several people who have bankrupted multiple times. In fact, I’m not sure I know (personally) someone who has bankrupted only once! It sounds like the lessons bankruptcy teaches are mighty hard to learn.
Yes, these types of investments would only be pursued after all debts are paid off.
Actually, they are pursued and liquidated to pay off secured creditors. Exemptions and what you get to keep and how all depends on each states bankruptcy laws.
Land and real estate are great investments as well as judgments, fine art, and fractional interests in businesses.
One great place to find these investments on the cheap is through bankruptcy asset auctions. Due to the down economy bankruptcy filings are on the rise and there are many assets to unload. Auctions like these are a treasure trove for the savvy investor.
i am still so drawn to the stock market and i think i will stick to it this year. the fascination has not worn off yet
I’m not sure why anyone would be completely opposed to investing in the stock market and still consider investing Wine/Art/Gold/Real Estate. The beauty of investing in a company is that it’s a living, breathing entity. It makes money. It (might) pay dividends. It has cash flow (hopefully).
Yea, ok, so that has a lot of “( )” in it. But what about Gold? It earns no money. Pays no dividends. Produces no cash flow. Neither does land, wine, or art. These are ONLY worth what someone is willing to pay for them.
Fractional interest in a company? That’s exactly what owning stock is. You’re part owner in a company. If you’re incredibly adverse to risk, you can own Mutual Funds as a sub-account in a variable annuity. But these usually charge close to or over 2.00% in asset fees, plus a sales charge. Sure, they give you a ‘guaranteed’ rate of return (say 2%), but you have to keep them invested for 7 years. The reason why they give you that ‘guarantee” is that nearly every 7 year period in the stock market’s history you could have made MORE than 2%. So it’s not really a guarantee at all. Investing longer? 10,20,30 years? You’re average rate of return will be closer to 9-12%.
What about bonds? In nearly every 30 year period in history, stocks have outperformed bonds (something like 99% of the time).
I’m not saying all of this to badger you into investing into something you do not understand or have faith in. But dismissing the stock market all together from your long-term investing philosophy is the biggest mistake individual investors could possibly make.
A portfolio with 25% US stocks (S&P500), 25% non-US stocks (EAFE), 25% Real Estate (NAREIT), 25% Commodities (GSCI) between 1972-2007 turned every dollar invested into $87, with the worst 3-year return of only -0.56% and worst 10-year return of 8.74%. Now, what 2008 a horrible year? Yes of course, but the stock market has natural bull and bear cycles. That’s why we invest for the long-term and slowly get more conservative as we age. At 60-years-old, you shouldn’t have 80% of your nest-egg in stocks!
Anyways, sorry for the ramble. Hope this helped a little bit.
Matt, you make a lot of good points. Investing in stocks is a good, long-term investment for 99% of investors, just probably not me : ).
ummm go back through financial peace again. Pay attention the of mice and mutual funds.
Or just don’t become wealthy. Hide it all in a mattress. Come on!
9-12% interest over the long term! Thats how millionaires do it. All day every day. Simple investments simple wealth.
The benefit of investing in real estate or other tangible property (even wine to some extent) is that it has tangible, physical value. To me stocks are risky because their value is not directly tied to anything of physical value. They are only worth as much a buyer is willing to pay, and they can tank and lose essentially 100% of their value overnight. Land has inherent physical value: a house can be built there, a business can be built there, it can raise crops, animals, etc. Your land is not likely to go up in a “poof”. From my perspective owning/part-owner in a small business is not the same as buying stock in a company for reasons similar to those listed above. The return on your small business is tied to your ability to sell your product and services, and you also have valuable capital assets at your disposal. The value of your stocks, however, are not based on physical, tangible assets or products of a company, but only the perceived strength of a business or the market at large.
On a separate note:
I’m not sure having all of ones assets and investments directly tied to the value of a currency such as the US dollar is a secure way to go in our 2010 world. The US dollar many years ago ceased to be tied to anything of tangible value. As was witnessed in European nations such as Germany post World War 1 as well as Zimbabwe and many South American nations in recent years, rampant inflation can cause the collapse a currency and can simply wipe the slate clean. You may feel you have a lot of “money” in a highly diverse portfolio, but if its “real” value (i.e. its purchasing power in terms of tangible goods and services) is all tied directly to the value of the currency, all of your eggs are in a certain sense in one basket. This has worked for many years because the US dollar has been relatively stable. Today, however, with trillions of dollars being pumped into the US economy by the Federal Reserve and the US government as well as the loss of a large portion of the US manufacturing sector and the weakened economy we are in, the stabililty of the US dollar is in question. In any case, when considering “investing” or “saving”, one should contemplate the real value of investments and not just the face or monetary value.