Did you spend the end of August anxiously watching financial channels and monitoring the huge drop in your stock values? Then go through it again in January? If you held on to your stock portfolio through those trying times, we hope your portfolio survived. However, if you are still popping antacids fearing another slide, you may want to look at alternative forms of investment.
The return on any investment is relative to its risk — higher return usually means higher risk. Over the long term, the stock market provides the highest returns, but you may be able to find suitable mixes of alternative investments that can bring you decent returns without the added heartburn. Here are a few options for your consideration.
- Bonds – To have a balanced portfolio, you should already have some of your investments in bonds. Bonds provide a fixed-income alternative to riskier stocks, but by nature have limited growth. Within bonds, you can find a range from stable Treasury bonds to corporate or municipal bonds that provide different rates of return (and risk) depending on the creditworthiness of the issuer and the duration of the bonds. WARNING: Investing in high-yield, high-risk junk bonds could increase your Tums consumption.
- Precious Metals – Gold and silver are the most common precious metal investments, but other rare metals used in industrial applications such as palladium and platinum are available. You can buy bullion or coins directly, or invest through exchange-traded funds (ETFs) that hold bullion and track the price. Prices of precious metals and stocks often move in opposite directions.
- Commodities – There are a wide variety of commodities available for investment purposes, from grains and crude oil to common industrial metals like copper. Each commodity market has its own trends and peculiarities to study before investing.
You can invest directly through a brokerage or via ETFs that track particular commodities. You can also consider futures trading, where you agree to buy or sell a particular quantity of a commodity at a specific price. By using leverage (effectively borrowing money to deal in larger quantities), you can see large returns — or large losses. If the risk and volatility of the stock market is enough to concern you, commodity futures may not be a better choice.
- Real Estate – Investments in real estate can take several forms. You can buy rental homes and make your money from rent payments, if you are willing to deal with the management issues of being a landlord or pay a management company to handle it for you. Another possibility is to join a real estate investment group to spread out the costs.
Real estate investment trusts (REITs) are an excellent choice if you want to invest in real estate but do not have large amounts to invest. REITs are a style of security that invests in real estate using pooled funds from investors, either in commercial or residential properties. REITs can either hold mortgages or make money via rent. The nice thing about REITs is that they can be traded in a method similar to stocks and have a great long-term track record of high returns — around 13% per year on average over the last forty years.
Why worry yourself sick over the stock market when you have options? Review any interesting alternatives in detail and balance your tolerance for that form of risk versus the historical and potential rewards. Invest appropriately based on your findings, then sit back and relax knowing you have done your best. Life is too short to worry about investments and its heartburn.