How To Invest Without The Stock Market: The Complete Guide

| November 15, 2016

Ways to Invest Without the Stock Market“The US dollar is going to collapse, don’t put money into the stock market!”

Have you ever heard similar advice? I’m sure you have. And for good reason.

The US dollar is economically weak, but politically and realistically strong — a weird combination, but it’s true.

Before we get too far off into the debate over the US dollar (and I can go on all day; I am a finance nerd, remember ???? ), let’s get to the important stuff here: investing without the stock market. That’s what this is about.

What Diversity Really Means

I love the stock market, but I also love diversity, because I love investing and investing without diversity is illogical.

There’s diversity, and then there’s diversity within diversity. Diversity means owning several types of investments. Diversity within diversity means owning several types of each investment. Owning stocks across several sectors, different types of bonds, and cash accounts is great diversity within the paper asset class, but that’s all it is.

True diversity has to span asset classes.

Warren Buffett has been one of the most famous, and long-running, advocates for the stock market. That’s where he made his money, and he recommends it as the easiest way for you to make money on your investments. But even Buffett has diversification outside of the New York Stock Exchange.

Buffett’s Investing Rules (Not Just for Stocks)

Buffett’s famous letters to his Berkshire Hathaway shareholders have not only been valuable for learning how to pick stocks, but they’ve been valuable in making any investment decision.

Here are a few examples from Buffett’s letters:

“Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on.”

As you’ll see in a moment, many of these comments pertain to Buffett’s farm and the piece of commercial real estate he bought in New York. Whether we’re talking about a dividend stock or a farm, there are many universal investing principles.

There are always two basic types of investment: investments that produce and investments that don’t.

That means you have three ways to make money when you invest:

  1. You can make money from what the investment produces
  2. You can make money from what the investments becomes worth
  3. You can make money from a combination of the two

That’s it. And that covers any investment I can think of. The terms may change, but in the end, you’ll be earning money in one of the above three ways. The stock market gives you the opportunity to use one or all of these ways to make money, and so do plenty of other investment opportunities.

Back to what Buffett says about his his two non-stock investments mentioned earlier:

“With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations.”

According to Buffett, what an investment produces is much more valuable than what the investment itself is actually worth. This idea is easily explained in the stock market by looking at dividend stocks, but how do other types of investments “produce?” Investments can produce in several ways; a farm produces a crop or meat or dairy or something along those lines. Real estate can produce cashflow through rental income.

There are all kinds of ways investments produce.

Let’s look at one more universal investing principle from Buffett, and then we’ll get into how you can start investing without the stock market:

“My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following — 1987 and 1994 — was of no importance to me in making those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.”

It’s funny how these ideas that are often thought of as “stock market investing tips” can span asset classes.

That’s my point. Look at most investing principles universally, and apply the principles to the following ideas…

9 Ways to Invest Without the Stock Market

I highly suggest diversifying your portfolio to include some of the following. You don’t need everything here, but I recommended at least trying a couple.

If you’re investing outside of the stock market because you’re afraid the market or the US dollar is going to collapse, I have bad news. If the dollar or the stock market collapses, it’s going to affect other investments. It would affect everything. In the world.

Note: If you’re truly worried about the dollar collapsing, I suggest investing in skills and friends. Skills will always be valuable, even if the world economy collapses. If something catastrophic happened, you would want to know how to do things that people will pay you for and you would want people on your side. However, my advice is that worrying helps nothing.

Whether you’re afraid of the stock market or just looking for some more diversity, here are some options you have for investing:

  1. Hard Assets – Commodities like gold and silver are the old “go-to” alternate investment options. The only problem with these is that they don’t produce; the hope is that the value increases, but it doesn’t always. It’s good to have some hard assets, but I personally wouldn’t go as far as backing a 401(k) with them.
  2. Inventions – Angel investing is the main way to find good invention ideas, or just talk to people you know. You might only be a couple degrees of separation from an inventor who’s looking for investors. When you hear of a good Kickstarter fund for an invention, contact the inventors and ask them if they have investment opportunities.
  3. Real Estate – It will always be worth something. Everyone has to live somewhere. You can invest in rental properties that will produce an income, or you can buy raw land in hopes that it will increase in value. Just keep an eye on your taxes and make sure to pay them. Commercial real estate is another option, but do your research first!
  4. Small Business – It’s true that most small businesses end up failing, but if you really know of a groundbreaking local business, it’s worth a shot. You know the local market better than outsiders; use that to your advantage. If you think you’ve found the next Apple, you could be in for some big returns …of course you could also lose everything you invest. Greater rewards come through greater risks.
  5. Peer-to-Peer Lending – You can loan money to your brother-in-law and tell him to pay it back with interest. However, that may be the last time you ever see your money or your brother-in-law. Fortunately, there are ways to take advantage of peer-to-peer lending with less risk. Lending Club and Prosper are two of the most popular options, and the offer quite a bit of protection. Similar to the protection of a mutual fund, they will spread your investment across many different peers, so you’re not lending your money to one person.
  6. Collectibles – Sports cards, stamps, model cars …almost anything is collectible if you can find a buyer and you can keep it in mint condition. This is more of a hobby than anything so you want to be sure you’re interested in whatever you’re collecting. But remember, for collectibles, without a buyer, it doesn’t matter what it’s “worth.” Use that to your benefit when you’re buying collectibles, and you will have an easier time selling them down the road. Often, due to how long it takes for some collectibles to become valuable, consider leaving this as a legacy to your children, possibly even for their children.
  7. Antiques/Art – Similar to other collectibles, antiques and art are only worth what someone will pay. That being said, there is a large market for both of these things. The most important thing here is to do your research. A well-researched buy can outperform the stock market any day. An uninformed buy can be the biggest burden in your portfolio.
  8. Wine Bottles – It’s actually possible to make between 6% and 15% annually by investing in wine. You need to know a lot about wine, such as which wines are worth the most, how to store it properly and where to buy it, but this investment can definitely pay off. Of course, you need to make sure you’re not going to be tempted to drink it all.
  9. Farming – This can go one of two ways. It can either be a lifestyle investment by buying and working a farm yourself, or it can be a capital-only investment by owning a farm that is run by someone else. Of course, you’ll usually have to go in and get the process started yourself, but it can be a profitable investment once it’s up and running. Remember, this is one of the alternate investment options Warren Buffett uses.
These aren’t your only options. Of course, you can always put your money in “high-yield” savings accounts or “invest” in CD (Certificate of Depression Deposit) ladders, but the rates of return are so low, it’s not much of an investment.

If you’re just looking to get out of the US stock market, there are plenty of stable foreign stock exchanges.

What are your favorite ways to invest outside of the stock market?


Note: You can find out more about Kalen and his blog here.

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