Best Investment Alternatives to Stocks

Investing in stocks isn't the only way to build wealth

Real estate agent talking to young couple in front of a house
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Historically, the stock market has provided one of the greatest sources of long-term wealth, with compounded returns averaging 10% per year over the past 100 years.

But investing in stocks is far from the only way to build wealth, with so many other options including building a business, acquiring real estate, investing in precious metals, and more. Depending on your investing preferences and personality, one of these alternative wealth-building strategies may be a better way to create financial security than investing in the stock market.

Should You Invest in Stocks?

Due to inflation, the real rate of return on investments in lower than 10%. But even taking that into account, the average investor still earns less than the rate of return on the market, sometimes as much as 3% less. 

Many investors see lower returns due to investing poorly, trading too frequently, using high-cost brokers, the sales load on mutual funds, and other fees and errors that cut into their profits.

Investors who have seen the best returns are the ones who:

  • Keep stock for the long term
  • Hold shares in a low-cost index
  • Reinvest their dividends
  • Take advantage of tax rules
  • Let compounding do the heavy lifting

Keeping an eye on each of these factors requires time, effort, and knowledge, which can be off-putting to some investors. If you are unsure whether you should invest in stocks or look for alternatives, be honest about your interests, personality, and willingness to invest not only your money but your time and attention.

Investing in stocks might not be the best choice for you if:

  • You feel panicked when stock prices fall rather than seeing an opportunity.
  • You lose sleep and worry a lot about owning stocks.
  • You think the stock market is like a casino.
  • You think a stock split is a bonus.
  • You can't read an income statement, balance sheet, or annual report.
  • You don't know what the earnings yield is.
  • You don't understand the price-to-earnings ratio.
  • You don't know what makes a good broker or what different fees are paying for.

Luckily, you can still invest your money in other asset types to build wealth, reduce your risk, and diversify your portfolio.

Popular Alternatives to Investing in Stock

If you want to earn a good after-tax, net-of-inflation return without investing in stocks, there are popular and reasonable alternatives.

Business ownership

Running a profitable business, including a franchise of a national chain, requires a specific skill set. You'll need a long-term business strategy to invest, expand, grow your profits, vet employees, and handle all the details that come with business ownership.

A business offers a reliable form of collateral if you ever need to take out a loan. At the end of your working years, a well-run business can either be sold for profit or passed down to the next generation.

Real estate

Many investors gravitate toward buying and managing real estate investments because they are tangible and can offer a relatively passive form of income. Owning real estate also offers access to equity, which you can leverage to buy additional properties or improve your existing ones.

Many sub-specialties exist for those who invest in real estate, including individual rental houses, apartment buildings, storage units, car washes, office buildings, industrial buildings, and even real estate options or tax lien certificates.

Precious metals

Silver and gold, along with gemstones and other precious metals, are generally physical items that you own. Investors can acquire coins, gems, or gold bullion, and large amounts should be stored somewhere secure such as a bank or brokerage firm.

Many investors buy precious metals or gems with the idea that they never lose their value. While these items are consistently valuable, they are subject to supply and demand, just like any other market commodity.

Cash and cash equivalents

Cash or cash equivalents, such as money market accounts and certificates of deposit (CDs), are generally very secure investments that offer reliable and predictable interest rates. CDs can be accessed at set intervals, depending on the type of account you have. Money market accounts often come with a debit card and can be accessed quickly. Both these types of investments are federally insured. 

Downsides to Alternative Investments

Alternative investments may feel safer than investing in the stock market. However, they do come with drawbacks.

  • Inflation. Cash equivalents like CDs or money market accounts earn reliable interest. However, the rate of interest they earn may not keep pace with inflation.
  • Liquidity. You can buy and sell public stock at a moment's notice because the market has so many willing buyers and sellers. But if you invest your money into gemstones, precious metals, a business, or real estate, it would require more time to cash out your investment in the event you needed the money quickly.
  • Market unpredictability. Just like the stock market, it is possible for alternative investments to be worth less than what you paid for them. It is possible for the value of gold or silver to go down or for your real estate investments to end up underwater or in foreclosure.

No matter what type of investment you choose to make, it is important to diversify your assets so that market fluctuations do not impact all of your wealth in the same way at the same time.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

Article Sources

  1. Alabama Securities Commission. "The Basics for Investing in Stocks." Accessed April 27, 2020.

  2. Morningstar. "Mind the Gap 2014." Accessed April 27, 2020.

  3. Morningstar. "Mind the Gap 2019." Accessed April 27, 2020.

  4. Federal Trade Commission: Consumer Information. "Investing in Gold." Accessed April 27, 2020.

  5. Consumer Financial Protection Bureau. "What Is a Certificate of Deposit (CD)?" Accessed April 27, 2020.

  6. Consumer Financial Protection Bureau. "Is a Money Market Account Insured?" Accessed April 27, 2020.

  7. SEC Office of Investor Education and Advocacy. "Saving and Investing: A Roadmap to Your Financial Security Through Saving and Investing," Pages 12-13. Accessed April 27, 2020.