In the current market, diversifying one’s portfolio beyond stocks is crucial. Experts have often emphasized the importance of diversification. You must go beyond equities and mutual funds and build a diverse portfolio if you’re looking for ways to increase wealth and improve portfolio performance. Fortunately, you have a number of non-stock market linked investment options at your disposal to help you reach this objective.
When people consider investing, they frequently begin by researching the stock market. However, there are other alternatives to investing in equities, mutual funds, and exchange-traded funds. In fact, it’s usually a good idea to diversify your portfolio with assets that aren’t positively or even negatively associated with the performance of the stock market.
Read on to discover about other investment choices to put your money to work for you without purchasing stocks, whether you can’t get over your fear of investing in stocks or you simply want to diversify your portfolio. However, the range of these options spans from safe to highly volatile, so do your research before making an investment.
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1. Gold/Digital Gold
There are many other ways to invest in gold, including gold bullion, gold coins, gold mining firms, gold futures contracts, and mutual funds that do the same. A way to invest in physical gold is through digital gold. Similar to regular gold, it can be bought online and stored in safe vaults by the vendor on behalf of the buyer. You can buy or sell hallmark 24 karat gold for as little as $1. Given the current macroeconomic conditions, investing in gold via ETFs, digital gold, or even sovereign wealth bonds is a fascinating choice.
2. Fixed Deposits
A fixed deposit is a secure investment choice that ensures constant interest rates, with older persons receiving extra interest rates. The RBI has raised the repo rate by 225 basis points since May to battle inflation, hitting 6.25% in FY23. The increase in the repo rate has increased the appeal of the FD rates to investors. Term deposits may also be taken into account. 3 year+ FDs that are currently providing yields above 7%.
3. Vacation Rentals
Using a vacation house to rent out when you’re not there can be a wonderful way to sate both your soul and your portfolio. When you want to go on vacation, you can utilize it, and then you can rent it out to pay your expenses as the property (hopefully) appreciates. The residences aren’t extremely liquid, despite the fact that holiday rental websites might make management simpler. Therefore, you might have to wait to find a buyer if you urgently need to withdraw money.
4. Private Equity Funds
Private equity funds are collectives of investors’ funds that are managed by a manager that makes investments in privately held businesses to support their expansion. Although private equity funds may offer better rates of return, they may also charge large management fees and keep your money in a locked account for a number of years or longer. You might not be eligible to invest if your net worth or income isn’t high enough, as direct investing in private equity funds is typically restricted to accredited investors.
In annuities, you sign a contract with an insurance provider, agreeing to pay a set sum up front in return for a series of payments from the provider over a specific time period or for the rest of your life. It depends on how your future payments are computed whether an annuity is fixed, variable, or indexed.
Taxes on wages are frequently postponed until you get annuity payments, which is a benefit. The high fees associated with annuities, however, may cut into your income. Additionally, they’re frequently linked to high broker commissions, so proceed with caution and conduct independent research before purchasing an annuity if an investing professional tries to convince you to do so.
6. Corporate Bonds
When businesses need to borrow money, they typically issue bonds, which can be bought by anybody directly from the business or on the secondary market. A bond pays interest over a certain period of time before maturing and paying the bond’s face value. The danger of the borrower defaulting affects the interest rates; the greater the risk, the higher the interest rates.
You don’t own any equity in a firm when you own a bond, unlike a stock, so if the company performs very well, you won’t benefit financially. Your returns are more predictable than stock returns because, even if the company has a bad year, the amount of interest you are owed remains the same. However, even though corporate bonds are frequently highly secure, there are no assurances and your investment could be lost all or substantially in the event of default or bankruptcy.
7. Peer-to-Peer Lending
With the help of peer-to-peer lending businesses like Prosper and Lending Club, you can invest in loans to other people. When a customer requests a loan, you can give a modest amount—as little as $25—and then get reimbursed with interest as the loan is repaid. You run the danger of losing your money if the borrower fails, but you can lessen your exposure by spreading out your investments among a variety of notes. If the borrower defaults on a single note, you are out the entire amount. However, if you have 100 tiny notes, a number of borrowers may default, but you might still make money.
8. Real Estate Investment Trusts
Consider a real estate investment trust (REIT) if you’re looking for a means to invest in real estate but don’t have the money or the time to do the extensive due diligence required to buy the properties outright. REITs invest in a variety of real estate, such as residential, commercial, hotel, and industrial properties, and then give the owners the rental income. This enables you to incorporate real estate in your portfolio even if you don’t have a few million dollars lying around or the time to devote to thoroughly researching your neighbourhood.
Digital, decentralized currencies known as cryptocurrencies are gaining acceptance all around the world. Although Bitcoin is the most well-known cryptocurrency, there are other options as well. This option is reserved for the serious gamblers out there because cryptocurrencies are extremely volatile and the price swings are not for the faint of heart.
10. Municipal Bonds
In order to raise funds for initiatives like the construction of new schools or roadways, city and state governments often issue bonds. Although the interest rates on these bonds may be lower than those on corporate bonds, the interest is not subject to federal income taxes and may not be subject to state and local taxes as well. As a result, your after-tax return may be comparable to or even higher than that of some bonds with higher interest rates.