How to Make Money Without Investing in the Stock Market
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Whenever we think of investing, the first thing that usually comes to mind is the stock market. But there are many other ways to invest your money than just stocks, exchange-traded funds (ETFs), or mutual funds. Diversifying your portfolio with investments unrelated to how the stock market performs is a good move to take.
Considering the current economic situation, inflation, and market volatility, it is a wise course to think of other investment options. Whether you want to diversify your portfolio or simply can’t get over the fears of market volatility, here are a few ways you can make money without investing in the stock market.
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Ways to make money without investing in stock
Peer-to-peer lending
Invest in loans to other people through services like Lending Club and . It is possible to contribute small amounts as low as $25 to fund a loan that the customer is requesting. You will get repaid with interest when the loan is paid. But there lies the risk of losing all the investment if the borrower defaults. Hence, invest in small amounts in a range of notes to reduce the exposure to an individual’s financial situation. When you have only one note and the borrower defaults, you will lose everything, but if you have 50 small notes, even if a few borrowers default, you will have something in hand.
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Real Estate Investment Trusts (REITs)
If you are looking to invest in real estate properties but feel overwhelmed due to the heavy cash and time needed, you can consider investing in a real estate investment trust or REIT. The REIT will invest in different properties, including residential, commercial, warehouses, hotels, and buildings, and distribute the rental proceeds to the owners. It will generate income even if you do not have a million dollars to buy some property yourself. There are several platforms offering REITs through a simple and straightforward process.
High-yield savings account
One of the top investment options for beginners is a high-yield savings account. It is a type of savings account that pays higher than the standard savings account. The account carries low risk and is better than a traditional bank account. You can build a fund for emergencies and access the money whenever you need it. Most accounts come with no fees.
Related: Best High-Yield Savings Accounts
Savings bonds
If you do not want to take a risk and look for investments that carry stable interest rates, you might want to check out savings bonds. They are offered by the Federal Government and pay interest over a certain period of time. Since the government pays them, they have minimal risk, and the only way you could lose money is if there is a default by the government. You can purchase the Series I bonds which have a part of the interest rate based on the rate of inflation, or Series EE Bonds, which pay a fixed rate of interest.
Certificate of deposit
A certificate of deposit is a time deposit that will offer a fixed interest rate for a certain period. It is a form of generating passive income with minimal risk. The Federal Deposit Insurance Corporation protects the CD, but it comes with a fixed tenure. If you take out the money before the end of the term, you will have to pay an early withdrawal penalty. The investment is very safe and guaranteed by the full faith and credit of the U.S. government to never lose value.
- 3.50% APY
- $1,000 minimum to open
- No account opening or maintenance fees
Gold
It is possible to invest in gold in various ways, ranging from gold stocks, gold coins, physical gold, gold mining companies, gold mutual funds, and gold futures and contracts. Gold has been used to hedge against inflation for many years, and it hasn’t disappointed. But if you buy bullion or coins, you will need a safe space to store the investment. Hence, it helps to research well and look for a company that will store the gold safely for you.
Corporate bonds
Companies need money to grow, and this is when they borrow money by issuing bonds. They can be purchased from the company directly or from the secondary market. A corporate bond will carry interest over a set period, and it will pay back the face value at the time of maturity. The interest rate on the bond will depend on the risk of the borrower defaulting. If the risk is high, the interest rate will also be increased.
The bond will not give you ownership of the company, but the rate of return is predictable. Even if the company has a down year, there will not be any change in the amount of interest you’re owed. Corporate bonds are safe, but there is no guarantee, that you could lose all your investments in case of bankruptcy.
Vacation rentals
Using your vacation home as a rental property can be a great way to generate income. You can use the property when you wish to take a trip and then rent it out to cover the costs while enjoying the appreciation of the real estate industry.
Cryptocurrency
Much is being written and spoken about cryptocurrency today, and they have gained popularity with time. Cryptocurrency is the non-centralized, digital currency that can be bought and sold. Well-known crypto Bitcoin is very popular, but it is not the only option. There are several crypto assets you can invest in through your investment account. The investment is volatile, and there is a risk of losing money.
Related: Best Cryptocurrency
Municipal bonds
The State and city government will issue bonds to raise money for projects like building new highways or schools. These bonds are known as municipal bonds, and they carry a specific rate of interest. This rate may be lower than the one on corporate bonds, but the interest remains exempt from federal income taxes. You can also create a bond ladder which are different types of bonds that mature at various times over a few years.
Venture capital
With venture capital investing, you loan money to a business start-up that has the potential to grow. It helps them get off the ground and explore the market, and it is very similar to private equity. However, the investment is risky and not readily available to anyone. If you are an accredited investor with a high net worth, you might be eligible for the investment. Still, new options like equity crowdfunding have limitations on this investment product.
Annuities
An annuity is a contract with the insurance company where you agree to pay a specific amount of money upfront for a series of payments over a certain period of time or for the rest of your lifetime. An annuity can be variable, flexible, or even indexed, with the difference in how the future payments are calculated. The most significant advantage of annuities is that it helps delay taxes on the earnings until they are paid out to you. However, they carry high fees, which can reduce your earnings.
Affiliate marketing
Affiliate marketing is like running a retail shop. You have to sign up with retailers like Amazon and promote their products through social media apps, blogs, or your websites. It can fit into any online business, and it is a good way of making money. Even if you do not own a website, you can make money through affiliate marketing. You get to earn a commission while you grow your audience. The more sales you manage to help the retailer make, the higher your commission.
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Social media influencer
You can also earn money through Facebook, Instagram, YouTube, and Twitter. If you have many followers on your account, you can associate with brands to make money. The fan base on social media will work as an asset for you, and it will continue to generate income if you keep them working on the social media channel. People are earning millions from YouTube, but it is not passive income. You need to work on a marketing strategy and continue sharing and updating your content to attract new followers. It has become a full-time job for many, and the amount of money you make will depend on the success of your social media channel.
Related: How to Make Money on YouTube
Rent out household items
If rental income is an ideal option, you can consider renting out helpful household items. There could be things collecting dust in your garage, but these items could be useful to others. If you have large coolers, lawnmowers, or high-value items that people need for a short period of time, you can rent them out. Find a way for your clients to discover the products you have and a way for them to pay for using them. It is a good idea to start small here and then scale up. You should identify where the demand is and then offer the products. The downside is that your item could be stolen or damaged, but when you start small, you do not expose yourself to many risks.
Private equity
Private equity is an original form of peer-to-peer lending, and private equity is a great investment option for generating passive income. It is funding a private business you believe has the potential to generate revenue in the future. This could mean investing in private equity funds or to back a friend or family member to help fund their business with a contract to earn returns from the profits. But keep in mind that this investment could be risky and is a long-term bet.
Index funds
Instead of taking an ownership stake in a company by investing in stocks, or bonds, you can lend money to the companies and the government through bonds. An index fund is a collection of large bonds that earn high annual returns. You can invest a part of your portfolio in index funds for consistent growth and low risk.
FAQs
What will be the impact of passive income on income tax?
Passive income is a great personal finance strategy and can help generate side income, but a tax liability will arise for the same. However, you can reduce this liability and prepare for the future by setting yourself up as a business and opening a retirement account. It may not work for all the passive strategies, and you will need to be a legal business entity to qualify. You need to open a retirement account with a reliable broker. There are two options: A 401(k) or the SEP-IRA, and they both can help take a tax break on the year’s taxes. When you use 401(k) to stash the cash, you can put up to 100 percent of the earnings in the account up to the maximum annual limit. That said, you can also make an additional contribution of up to 25 percent of your business's profits. And if you choose SEP IRA, you contribute only at a 25 percent rate.
Is passive income investment a good choice?
Passive income can allow you to grow your money. It is a way of putting the money to work for you, and it is a good idea. But it helps to be careful when looking at the available alternative investment options because some of them cost you money.
Which is the highest passive income-generating investment?
The ideal passive investment will vary from time to time and year. Several external circumstances have an impact on the income it can generate. But real estate or REITs are a great low-cost investment for enjoying a high passive income.
The bottom line
If you are working on building wealth, these alternative investments are worth considering. They will help with diversification and reduce the risk associated with market volatility. There is no particular best investment or a one-size-fits-all investment strategy you need to follow. Consider your short-term and long-term goals before choosing an investment product. You can also seek the help of a financial advisor to allocate your money to different products to fit your requirements.
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Editor
Vandita Jadeja is a financial writer and editor at Joywallet. She loves to read and write about money and brings a decade of experience from the financial industry.
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