How to create wealth and invest outside the stock market

Retired man wearing jacket looking at sea

If you’re reading this article, you might already be contributing monthly to a 401K or IRA. You’re also likely looking into how to create wealth. For most people, the way to go about doing this is to invest their extra income in the stock market. 

While 2020 started with the US economy in a strong position, the impact of COVID-19 and the resulting recession has caused many to re-think where they are investing. In the current economic climate, building wealth may have to go far beyond your typical nine-to-five job and investing in stocks, bonds, and mutual funds. Savvy investors will start keeping an eye out for non-stock investment opportunities that may present themselves as a result of this evolving situation. 

If you are new to alternative investments, now may be the right time to explore stock market alternatives and alternative investment ideas that you may not have been aware of before. Alternative investments have always been an option available to motivated investors but because investments other than stocks are not as commonplace, many do not feel as comfortable with them. 

Many alternative investment opportunities typically have a low correlation to the stock market and can potentially protect your portfolio against fluctuations in the broader economy. Instead of putting all your hard-earned money in the same basket, consider these 5 alternative strategies that can help you invest in alternative investments, beyond the stock market. 

rental property at sunset meant to highlight opportunities for generating passive income outside the stock market

1. Invest in a rental property

Time commitment: Long

Money required: Medium ($20,000 to $100,000)

Purchasing property might be one of the first alternative investment ideas that comes to a retail investor’s mind. Buying a home is considered a rite of passage on the path to financial freedom, but for it to be a way to create wealth, it may have to be your second purchase which can be rented out to create passive income. This means a high barrier to entry for this specific asset class. On the plus side, however,  a drop in homeownership rates has led to a rental boom. Purchasing a second property can be a great way to boost finances for those who have the funds to do so.

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Rental investments can generate returns, plus benefits from a potential increase in equity. However, it can be difficult to be a passive landlord. Depending on your motivation as an investor, you could have an active approach where you take on the responsibility of maintaining the property or a passive one by involving a property manager. If you’re not interested in managing tenants and handling maintenance, you’ll need to hire a trustworthy property manager which can cut into your returns. 

Also, if you’re looking to build equity, you’ll need to purchase a property in a market with a strong interest in rentals and vacation homes. Many online portals will give you a feel for the market, but you’ll need to build your own payback/investment model.

Lastly, forced appreciation is one of the fastest ways to get the most out of your rental property. Forced appreciation is when a property owner increases the value of their property by taking specific actions—anything from gut-renovating a home to adding an extra bathroom. 

With this said, renovations can be costly, especially if you’re not doing them yourself. If you do decide to go this route, make sure you do your homework and vet contractors before any work begins.  

photo showing man in white shirt investing outside the stock market in alternative investments from his phone

2. Invest in alternative assets (beyond real estate)

Time commitment: Short

Money required: Low ($5,000+)

Recent technology has resulted in increased access to alternative asset classes for individual investors. Alternative assets represent an alternative to the stock market such as real estate finance, litigation finance, marine finance, art finance, and commercial finance. These asset classes have the potential to provide returns along with typically low stock market correlation while being backed by tangible collateral. They also require less time and energy than buying and managing physical investments such as rental properties.

Historically, alternative investments like these were typically exclusive to institutional investors or the ultra-wealthy. Today, alternative investment platforms like Yieldstreet are reinventing this model, allowing accredited investors to access investments that were previously only available to institutional investors. 

commercial buildings in downtown meant to highlight investment opportunties in commercial real estate space

3. Invest in a REIT

Time commitment: Short

Money required: Low ($500+)

Investing in a REIT may be a viable alternative to purchasing and managing a rental property on your own. REITs, real estate investment trusts, are generally non-stock investments that allow investors to generate passive income by investing in real estate indirectly with a low barrier to entry. If you’re not familiar with what a REIT is, that’s OK. REITs are companies that either own or finance income-producing properties. Apartment or condominium complexes, shopping centers, hotels, and warehouses are a few examples of properties that a REIT might invest in and manage.

When you invest in a REIT, you’re investing in a pool of real estate assets with other investors. It’s similar to a fund. With a REIT, you don’t need a large amount of capital to invest with upfront. You also won’t need to manage the properties yourself as the trust handles that. 

There are primarily three types of REITs:

  • Publicly Traded REITs issue shares listed on national securities exchanges and as such are regulated by the U.S. Securities and Exchange Commission (SEC). Their shares can be bought and sold by individual investors. 
  • Public Non-traded REITs are not available to investors on a stock exchange but are nonetheless registered with the SEC. They have lower liquidity and are typically not impacted by market fluctuation and so tend to be more stable than publicly-traded REITs. 
  • Private REITs, or private placement REITs are only available to an exclusive group of investors. They are not publicly traded, do not need to be registered with the SEC, and are generally not liquid. 
crowded coffee shop meant to highlight opportunties to generate wealth for investors to take part in franchises

4. Invest in a franchise

Time commitment: Long 

Money required: High ($50,000 to $1 million)

Investing in a franchise can be a great way to diversify your investment portfolio and potentially grow wealth with a stock market alternative. A franchise is a license you buy that allows you to run a business under the name of an already-established business. For example, a franchisee can buy a license to open up a McDonalds, Dairy Queen, or even a Holiday Inn.

The biggest drawback to investing in a franchise is that setting up one or two franchise locations will not generate enough income to make it interesting. You’ll need to buy several for the investment to be worthwhile, which usually means a larger check size and time spent finding the right franchisor. Getting into franchises may require investors to take on a more direct, active role in an effort to create wealth. To get started, you could attend a franchising trade show to get the lay of the land.

professional business woman on phone investing outside of the stock market in alternatives from her phone

5. Peer-to-peer lending

Time commitment: Short

Money required: Low (less than $500)

Peer-to-peer lending (P2P) is also known as social or crowdfunding. It connects borrowers looking for alternative forms of capital with lenders (such as you). Minimums on P2P platforms are often low and have the potential to result in high returns. That is, higher than if your money was sitting in a traditional or high-yield savings account.

As far as alternative investment options go, P2P lending is fairly new on the scene and is still evolving. It’s only existed since around 2005 and is an option when seeking a way to invest outside the stock market with a low barrier to entry. P2P became more commonplace as a result of new legislation introduced under the Obama administration called the Jumpstart Our Business Startups (JOBS Act) which led to significant strides in the way crowdfunding platforms can operate

Beyond being beneficial to those looking for financing, it can also be a good way to generate passive income for an investor. Investing with a P2P platform does come with risks, however. So make sure to thoroughly vet both the platform and investment before making an investment.

Not sure where to start?

It’s never a bad time to start considering alternatives to the stock market. Whether you started looking into it as a result of the market downturn or always wondered if there were other ways to invest, diverse and lucrative investment options do exist outside the stock market. That is if you’re willing to take the time to educate yourself, adapt your mindset, and are motivated to build wealth outside the stock market even during times of uncertainty. 

If you’re not sure where to start, one way is to explore Yieldstreet offerings, where accredited investors have access to alternative investments in a multitude of asset classes.

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