Best Non-Stock Investments to Grow Your Portfolio
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In an era of economic uncertainty, safeguarding and growing your wealth hinges on your ability to effectively manage your capital. A prudent investment strategy is paramount, and one of the cornerstones of such a strategy is diversification. While stocks have traditionally been a favored avenue for investment, maintaining a stable financial future necessitates exploring alternative options.
One way to ensure diversification is to invest in different asset classes, like alternative investments. A well-known example is real estate — an expensive but mostly stable market. After all, houses don’t normally grow legs and run off (unless possessed by something other than a bank). Here’s a rundown of the best non-stock investment options, their pros and cons, and how to access them.
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The major alternative investment types
Financial advisors work to increase the diversity in their clients' portfolios, and one way to do so is by increasing non-stock investments. The reasoning? Alternative investments reduce contact with public stock markets and provide “volatility dampening and downside risk protection.”
Three main alternative investment types are outlined in the study: liquid alternative investments, limited liquidity products, and illiquid private investments.
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Liquid alternatives
These are non-stock investments that are easily turned into cash. The most notable and common might be a high-yield savings account at a bank. I have one, and I’m sure you have one too.
According to FS Investments, mutual and exchange-traded funds (ETFs) fall into this category. U.S. investors alternative investment funds raised $740 billion between January and August of 2023 in liquid alternative funds. ETFs weren’t far behind, with over $475 billion invested in 2023 to date.
Limited liquidity products
Limited liquidity products allow you to invest quickly before liquidating the asset. Cryptocurrency is considered limited liquidity, while it has no required minimum time. This is because you’ll experience hurdles turning it into cash, like if crypto flops.
This investment type includes money market funds (MMFs) and “ultra-short duration bond funds,” as described by J.P. Morgan. Non-traded real estate investment trusts (NTRs or REITs) are also included in this category. NTRs fall second to mutual funds, with usage at 61%. And while interval funds were only used by 42% of interviewees, 15% plan to start using them soon.
Illiquid private investments
Looking for something less short-term? Illiquid investment opportunities include precious metals, physical gold, or collectibles. In other words, things usually take time to be converted into cash. Real estate, hedge funds, and private equity are alternative assets that provide more bang for your buck over time but have less accessibility. Private real estate is a particularly popular investment, with private equity also expected to grow quickly as 10% of advisors plan to begin using it.
Choosing the best non-stock investments
It’s impossible to determine which investment options are right for everyone. Considering current events, it's best to be flexible. Here are some things to consider as you work through financial planning and decide which non-stock investment is best for you.
The importance of liquidity
How quickly do you need to access your assets for cash? Depending on your lifestyle and daily expenses, this can change. Prevail recommends investing in liquid assets for up to a year’s worth of your expenses. This could mean you might invest in one mutual fund for a year’s worth of phone payments or in enough ETFs to pay off your car for the next three months. Still, spread things out to help manage your risk.
If you’ve already invested enough to secure your future for the next few months, it’s time to start thinking long-term. Going more middle-of-the-road with a REIT could be helpful, especially if you’re not ready to risk a large investment. Real estate is a great choice if you’re ready to go all in on something big and long-term.
Your risk tolerance
If you’re a beginner investor like me, there are many pitfalls you can easily fall into. There’s also the matter of learning investment lingo like futures and dividends.
For some lower-risk investments, consider mutual funds or ETFs. ETFs like iShares US Healthcare Providers ETF (IHF) and Schwab US Broad Market ETF (SCHB) diversify your portfolio and lower volatility. While there are some downsides, these can be a good starting point if you do your research.
Real estate might be your deal if you’re more seasoned and can stomach the risk. There are certainly risks to investing in real estate, such as surprise maintenance needs and acts of God. But land tends to appreciate. And owning a property you can sell later (and possibly rent out) can help protect you from inflation.
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The power of your dollar
ETFs are likely your best bet if you don’t have much spare money to invest. Mutual funds and ETFs are very similar in most areas — the major difference is that ETFs can be sold throughout the day and tend to be less costly. They’re also easier to find on trading platforms like Charles Schwab.
With more money comes more opportunity. If you have the capital, try real estate or private equity. There are some investment platforms you can use, like Cadre Real Estate. You might even poke around on Zillow or another website to purchase properties.
Companies that help with non-stock investments
Need a jump-off point? Here are some companies and platforms to consider.
Charles Schwab
Are you a beginner interested in personal finance? Charles Schwab is a good place to start. This brokerage firm is rated a 9/10 for its selection of tools and low fees. The platform includes easy access to mutual funds ETFs, and many more investment options. Financial planning and educational resources are also included. Looking to retire someday? Check out their IRA options.
Republic
If you’re interested in startups and venture capital, try Republic.co. This crowdfunding platform earned a ranking of 9/10 for its lack of fees and ease of use. Republic.co provides access to high-risk, high-yield investments to non-accredited investors. And they work hard to protect your money. The platform filters out 95% of its applicants to ensure your investments will go toward legit offerings. Republic is a good choice if you want an in on peer-to-peer lending.
Robinhood
The popular platform Robinhood is rated an 8.5/10 for its low cost and ease of use. A Robinhood account is free to open, and it’s easy for beginners to buy ETFs and cryptocurrency. The app is great for trading on margin if you’re more experienced and have $2,000 handy. The platform offers three tiers of membership: Cash, Instant, and Gold. Robinhood Cash allows you to trade without commission costs, while a Gold account is $5/month with access to margin trading.
DiversyFund
Looking for a good REIT? DiversyFund received an 8.5/10 for its great services and ease of use. While you will need to invest a minimum of $500, the platform charges no management fee and does not require accreditation. If you’re getting your foot in the door with real estate (pun intended), DiversyFund would be a good place to start.
Cadre Real Estate
A good option for you might be Cadre Real Estate if you’re an accredited investor with some hefty cash (#goals, right?). This real estate platform is transparent and straightforward. While you will need $25k to 50k on hand to access certain features, it’s a good choice for a streamlined alternative investment process. Currently, the site is only open to accredited investors, but Cadre plans to expand its reach. In the meantime, if you want something more financially accessible, check out Fundrise for access to eREITs and crowdfunding real estate options.
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The costs of investing in stock market alternatives
While some of these non-stock investments are logically great options, the price of investing might be inaccessible. For instance, private equity allows you to influence markets with your investment. But it also requires you to be a high-wage earner, like a CEO.
Meanwhile, real estate can be very accessible depending on the property's location and whether you plan to live there. As real estate investor Sean Pan explains, you might be able to pay as low as 3.5% on a down payment. But this only works if you live in a rental property you own for longer than a year. You’ll also need to look out for the interest rates that come with your mortgage.
Here’s a breakdown of typical costs that come with non-stock investments:
Type | Summary | Popularity | Price Range and Fees |
Mutual Funds | Highly liquid, low risk, fewer decisions | 1st place at 68%, rising popularity at 7% planned usage | 0.50% average expense ratios |
ETFs | Highly liquid, good for beginners, lower costs | 3rd place at 54% usage, rising popularity at 12% planned usage | Can be as low as $50/share, but beware of operating expenses and commission costs |
REITs | Medium liquidity, potential for increasing dividends, lower risk than direct ownership | 2nd place at 61% usage, 1% expected planned usage | Public can be $1,000 to $2,500 but harder to find; private can be $25,000+ |
Real estate | Illiquid, multiple possibilities for yielding dividends, can be used as a tax shield | 4th place at 47% usage, rising popularity at 4% planned usage | Depends on the area and the property, but average 20-25% down payment + closing fees |
Private equity | Illiquid, drive change and growth, lower competition | 7th place at 41% usage, rising popularity at 10% planned usage | Restricted as of 2020 to those with $1 million in assets and/or an income of $200,000/year |
Pros and cons
So you’ve made it to the end and taken a trip away from the stock market. Now what? Here are some final thoughts to summarize non-stock investments.
Pros
- Passive income. Most non-stock investment options offer possibilities for yielding passive income. For instance, REITs yield this in the form of dividends. You can make your deal, sit back and relax while earning income.
- Dampened volatility. Stocks tend to plummet for various factors, including international conflict and extreme weather. Choosing alternatives to stocks allows you to take advantage of more stable investments.
- Potential for higher returns. If you have the money to invest in private equity or commercial real estate, you may get higher returns than a typical stock market portfolio. That’s because these also come with higher risks. At the same time, they’ll help diversify your portfolio, which means your money is less likely to vanish with a downturn
Cons
- Can be expensive. Beyond ETFs, you’ll need to be able to throw thousands of dollars at individual investments. That adds up, especially if you weren’t rich to begin with.
- May require accreditation. Some forms of alternative investments require you to become an accredited investor. These tend to be unregistered and high-risk investments, but still. You’ll need to prove you have a decent net worth and good credit.
- More complex, less liquid than stocks. There are so many different kinds of alternatives. You’ll need to do a lot of research and be prepared to have no access to your investment funds for a longer period.
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The bottom line
Ultimately, we’re all trying to live a comfortable and safe life. Cutting out that morning Starbucks might save you $7 daily, but will it make you money? Nope. Starbucks likely won’t pay you to stop drinking their coffee —– but you can make a profit in other ways. And if you’re not interested in buying an SBUX stock, consider investing $7 in alternative investments like a mutual fund, ETF, crypto, or precious metals. You might even get lucky and invest in a portion of their building through a REIT.
Non-stock investments are a strong strategy to secure your future. And that’s without ruining your morning commute.
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Writer
A veteran wordsmith and research nerd, Brittany Wren spent a decade working in higher education where she helped people overcome challenges to chart a path forward. These days, she writes about personal finance, careers, parenting and education. Her content has been published by a wide variety of brands including T-Mobile, Intuit, LifeLock, Reliant Fund Administration and CURO Financial Technologies Corp.
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