The stock market has been a staple for investors for many decades, providing consumers with an opportunity to purchase fractional shares of ownership in publicly traded companies. If all goes well, you can benefit from appreciating stock prices and capitalize on cash flow from quarterly dividends—but at the same time, you could lose everything if your chosen companies go under.
On top of that, the stock market can be volatile, with prices fluctuating wildly (and sometimes irrationally) from day to day. It’s not for the faint of heart, and isn’t the best investment approach for people with low risk tolerance.
If you’re looking for a more conservative portfolio, or if you’re tired of suffering the consequences of volatile stock prices, you’ll want to consider investment alternatives.
Stock Market Alternatives
These are some of the best alternative investments if you’re looking to reduce your exposure to risk:
- Term deposits. In a term deposit, you’ll deposit an amount of money of your choosing for a fixed period of time—a “term” during which your money will mature. For example, you may deposit $10,000 for a period of 5 years, during which it earns 2 percent interest per year. When you retrieve the money, you’ll withdraw $11,040.81. Interest rates for term deposits vary from institution to institution, so make sure you shop around before investing.
- Corporate bonds. You may also consider investing in corporate bonds. These assets function like loans to major corporations; you’ll provide a set amount of money for a fixed term and a fixed interest rate. As long as the company is financially trustworthy, you can almost guarantee you’ll make a certain amount of money. You can also diversify your bond holdings with the help of bond funds, which provide you with exposure to many different types of bonds and companies.
- Treasury bills (T-bills). Treasury bills, or T-bills, are U.S. government debt obligations that are formally backed by the Treasury Department. You can buy them in denominations of $1,000, and hold them for a maturity period of 1 year, 10 years, or 30 years. The longer the maturity period, the higher the interest rate you’ll be able to secure.
- Real estate. Though it comes with its own set of challenges and risks, real estate investment is a good alternative to stock market investment. A solid rental property in a good area can help you preserve cash flow while helping you achieve property value appreciation. And if you don’t like the idea of owning tangible property, you can invest in real estate through real estate investment trusts (REITS), which can be bought and sold in shares, like stock.
- Precious metals. A reliable standby, investing in precious metals like gold and silver can help you hedge your bets against any other investment. Consider buying tangible precious metals, or buying shares digitally.
- Money market funds. A money market fund attempts to expose you to many different low-risk investments simultaneously. Ultimately, these funds produce a decent annual interest rate, and have a ridiculously low risk attached to them.
- High-yield savings accounts. High-yield savings accounts function like typical savings accounts, but with one important difference: they can earn annual interest of 0.75 percent, or even higher. This isn’t much, especially when compared to investments like bonds and real estate, but it’s likely better than what you’re earning in your current savings account.
Hedging Your Bets With the Stock Market
Though these stock market alternatives are great additions to your portfolio, you may not write off stocks completely. There are many strategies that can help you balance the risk and volatility of investing in the stock market, such as:
- Mutual funds and ETFs. Mutual funds and exchange traded funds (ETFs) attempt to expose you to many different stocks simultaneously. That way, if one stock underperforms, you’ll have plenty of other investments to balance it out. You can also choose to invest in a specific sector, or to invest in equities from companies all over the world.
- Conservative plays. You might also invest in the stock market with more conservative plays. Rather than buying into the hottest new tech company, consider investing in reliable utility companies, or companies that offer services that will always be required (like waste management).
- Dollar cost averaging (DCA). Dollar cost averaging is the process of investing in small increments over time, so you’re never stuck paying the absolute highest or absolute lowest price in total.
No matter what, one of your highest priorities should be portfolio diversification—investing in a number of different assets simultaneously, so you’re never exposed to too much risk at once. Take the time to analyze and rebalance your portfolio on a regular basis if you want to maximize your chances of long-term success.