Best Non-stock Investments to Look Out for in 2023
Investors can grow their money in many ways. Traditional financial instruments, such as stocks and bonds, are not the only options to choose from. As soaring inflation and rising interest rates continue to slow economic growth in Europe, North America, and other parts of the world, there is no better time to look for alternatives to the stock and bond markets than now.
This guide is meant to show you the best non-stock options that you can invest in and expect to make a profit on in 2023. Before discussing them, we looked into the benefits of choosing alternative investments so that you could be sure that they were worthy of your attention.
Meaning of Alternative Investments
In case you are new to investing, the term "alternative investment" is often used to refer to any financial instrument or an asset other than commonplace examples such as cash, stocks, and bonds. They have unique characteristics and cannot be easily sold or converted into cash. Some of them can be used as inflation hedges, which help to avoid suffering from a fall in the value of money.
Benefits of Alternative Investments
Alternative investments offer a number of benefits to both beginners and experienced investors due to their special characteristics. We outline them below:
- Direct ownership of the asset: Unlike traditional public investments like stocks, alternative investments give you direct ownership of the assets that you invest in. You can have your name on them and put a new name on them while selling them to a buyer.
- Independent of the stock market: The stock market is known for its potential to offer big wins and major losses due to its unpredictability. Hence, alternative investments are better since they do not change in line with the ups and downs happening in the stock market.
- Lack of volatility: Alternative investments are not publicly traded like shares and bonds. Thus, they help avoid the volatility associated with public investments, which are known to ruin interest compounding.
- Direct benefits from tax: Many alternative investments allow the tax benefits to be passed directly on to part-owners of the assets, allowing each person to keep more of their profit. For example, through the deduction of depreciation in the calculation of net earnings, the taxable income is reduced.
- The significant flow of income: Some alternative investments can give you a steady cash flow to build significant passive income over time. You can get returns monthly, quarterly, or annually as your assets are being used by renters.
12 Best Alternatives to Investing Your Money in Stocks
We have been discussing alternative investments and the benefits they offer to investors, but haven’t mentioned any of them yet. Without further ado, the following are the best alternatives to investing in stocks:
You can invest in real estate as an alternative to stocks. Examples of ways to go about it include owning rental property on which you only need to cover maintenance costs while generating income. Although this type of investment is not cheap to start, it can be a reliable source of cash flow at all times.
Furthermore, leasing out your property, developing and reselling properties (flipping), as well as buying commercial real estate, are also worth considering. Besides, you can employ a property management firm. It will allow you to own real estate without having to manage it. You would still be responsible for paying for maintenance and giving up a significant percentage of your rentals to the management firm, but you would not be responsible for managing your real estate assets on a day-to-day basis or collecting rent.
Platforms for peer-to-peer (P2P) lending offer loans to both enterprises and consumers. You can choose to become a member of a P2P lending platform. As a peer-to-peer lender, you work like a lending club by pooling your funds with those of other investors to lend money to individuals. This enables you to diversify your investment among different loans, such as personal loans, with various risk profiles. The interest you are owed as an investor can be a means of regular passive income as you get paid by your debtors.
Remember that debtors are constantly at risk of defaulting on loans when their personal debt increases. Nonetheless, one of the most effective ways to lower the total risk of this kind of investing is to be able to diversify your money among a number of loans with various risk profiles.
Buying a piece of eye-catching artwork and holding onto it until its value rises before selling it in the future is a good alternative investing idea. However, to keep the artwork in its best condition over time, you need to know how to preserve it.
You can seek the assistance of a professional who can advise you on which artwork to purchase and which artists to support, as well as assess the value of your collections. All in all, keep in mind that it takes a lot of time and effort to convert your work into cash because the fine art market is highly illiquid.
Gold and silver are precious metals that are historically known to be liquid assets. You can invest in them to maintain a long-term store of value, including in times of high inflation. Besides, they can serve as an alternative to fiat money and digital currencies in all seasons.
Commodities like precious metals are hardly affected by changes in the stock market. The price of gold is about 650% higher now than it was in the year 2000, selling for about $1,800 per ounce as of December 2022. Because it has historically appreciated in value, it is a reliable and excellent inflation hedge.
Despite the high price of gold, precious metals are no longer so expensive to invest in. For example, with just $1, you can invest in gold, silver, and other commodities using financial apps such as Revolut and eToro.
Venture capital (startup investing)
With many fintech startups and other new business establishments springing up in various industries here and there, instead of investing in the stock market, you can provide capital to emerging companies. It pays to help founders grow their firms. What would you get in return for choosing this type of alternative investment? Equity and, possibly, a share in the management of the business.
You can join any of the best venture capital firms (VCs) to partner with experienced investors, influencers, thought leaders, and regulators. It will also give you access to a portfolio of equity-generating investments, including high-growth, best-in-class innovative startups. This can save you the stress of building a portfolio yourself. Besides, you will be able to choose what stage of business growth to invest in: pre-seed, seed, early stage, or late stage (initial public offering, IPO).
If you are based in Europe, you can register as a member of a venture capital firm such as Anthemis Group, which is headquartered in London (United Kingdom). This VC funds popular companies, including:
- Business and corporate banking solutions providers such as Atom Bank, Tide, and Axle.
- Retail banking and consumer finance service providers and neobanks such as Monese and Fidor Bank.
- Payment services such as Azimo and Vericash.
- Capital markets and crypto trading platforms such as StockTwits, Carta, and eToro.
Alternative investment enthusiasts in the Americas can consider joining a VC firm such as Y Combinator. This California-based company has a portfolio of many best-in-class startups you can invest in. They include GitLab, Stripe, Coinbase, Dropbox, and GoCardless.
Prospective investors in this type of alternative investment need to be aware that venture capital returns adhere to the Pareto principle or 80/20 rule. What is it about? It states that 80% of profits originate from 20% of projects.
Private equity funds
With average yearly returns of almost 11%, private equity is the most popular alternative asset class among institutional investors. Private equity is a type of investment where there are up to nine bidders for every seller of assets.
Contrary to venture capital funds, private equity funds do not invest in startups; rather, they provide funding to businesses that are not publicly traded. A private equity fund investor buys a share of a business in order to restructure it while providing enough funding to speed up growth and development.
Until the private equity fund sells to another bidder or goes public in an IPO, the invested amount is, in most cases, locked up. The waiting period for returns can last up to ten years. So, if the private equity firm sells its position for a profit, you, as an accredited investor, will get a portion of the proceeds.
An experienced investor once said, "If it appreciates, buy it; but if it depreciates, lease it." This idea works for an alternative investment option like equipment leasing, which is a great way to generate passive income.
Every business spends on equipment, and it is usually their most expensive investment. Hence, a smarter option for them is often to rent rather than buy, especially because they can be costly and depreciate over time. So, many individuals and businesses prefer to rent equipment through leasing.
Individual investors can choose equipment leasing as a means of making their money work for them. But that does not mean that companies cannot go into this business. The mode of operation will depend on the lease contract, which can be individual-to-individual, individual-to-company, company-to-individual, or company-to-company.
What equipment is ideal for lease investing? There is a wide variety of assets in this market. They include:
- Office equipment—scanners, printers, copiers, desktop computers, and multifunctional devices.
- Power generation equipment—Packaged power plants, portable generator sets, power system control equipment, wind turbines, accessory modules, transformers, gas valves, switchgear, and so on.
- Security and access control equipment—ID printers, biometric readers, video surveillance systems, alarm systems, x-ray machines, scanners, handheld metal detectors, and explosive detectors.
- Communication systems—telephones, video-conferencing equipment, call centre systems, digital signage, automation controller, and many others.
- Software—integrated solutions, custom workflow packages, enterprise content management tools, team collaboration programmes, and so on.
- Heavy duty equipment—Forklifts, cranes, tractors, bulldozers, diggers, concrete mixers, and conveyors.
- Speciality solutions—Mailroom equipment, Point of Sale (POS) systems like those from Square, and plant and warehouse equipment.
If you are interested in this type of investment, you can get a fund manager to help you make the decisions concerning what equipment to acquire. The person can also assist you with the task of renting them out in return for monthly payments. Depending on the agreement, when the full payment for the asset has been made, the lease will end, and the property will become that of the buyer.
Crowdfunding offers investors a fantastic opportunity to grow their money. It enables them to use crowdfunding platforms to financially support businesses that they like. In return, they can get a share of the profits if the firms succeed in the market. Note that real estate assets can also be crowdfunded, although qualified investors may be the only ones able to do so.
If you are interested in this kind of investment, you must create an account with any of the top crowdfunding platforms, such as Tomorrow, Kickstarter, GoFundMe, SeedInvest, StartEngine, and MANGOPAY. An unlisted startup firm, for instance, may initiate a crowdfunding campaign on a platform with which you have an account. You can then invest money in it in exchange for its stock.
Meanwhile, you may be interested in learning about the changes that await the crowdfunding market in Europe in 2023.
Entrepreneurship (starting your own business)
Historically, starting a business, being an entrepreneur, or founding a startup has been an excellent way to make a stable income and build wealth over time. In fact, it has the potential to give you some of the best returns of all your investment options. Recall that the majority of the richest people in the world today are the founders of large corporations.
That said, even if the ideal enterprise generates good profits, there is also a chance of failure and complete capital loss if bad management decisions are made. For example, not launching your fintech startup in one of the best countries for financial technology companies, making avoidable personal money mistakes as a sole proprietor, failing to prevent chargebacks, choosing the wrong payment service provider, or falling victim to wire fraud already reduces your chances of success.
Another factor that could lead to failure is when the environment of the business becomes unfavourable. Examples include new legislation that does not support your business or a natural disaster that adversely affects the condition of your assets, production line, supply chain, or market.
Nevertheless, with the right information, business education, and management practices, you can not only sustain but grow your business to greater heights over time. It is also helpful to form good habits like regularly reading our blog posts, overviews, and other useful online content to get fresh and reliable ideas for business success, especially if you are interested in the fintech or payments industry.
Fine wine is a good investment idea to help you generate passive income because it is an alternative asset class. This is due to its limited supply and strong demand.
Additionally, the demand for fine wine is growing. Moreover, its demand elasticity is relatively low. In other words, demand for premium wine remains relatively constant even when prices rise.
The stock market and fine wine have little in common. For example, compared to fine wine's 13.6% annualised returns over the past 15 years, the S&P 500, which tracks the performance of the stocks of 500 large companies, returned 8.58%.
If you like this business, you may start investing in wine today to grow your money over the next few years. You can start by buying and keeping bottles on your own, placing bids at wine auctions, or buying wines through brokers.
The fine wine business looks lucrative, but it is quite challenging to find premium wines and begin investing in them. That is because less than 2% of them are investment worthy. Besides, as wine bottles are purchased, consumed, or lost annually, the supply also declines with time.
Non-fungible tokens (NFTs)
Investing in non-fungible tokens (NFTs) is another alternative to stocks. In case this is your first time learning about NFTs, read our post on "What is an NFT?" to get a good understanding of them. With so many non-fungible tokens on marketplaces and platforms such as OpenSea, Rarible, Nifty Gateway, SuperRare, Coinbase, BitPay, ZenGo, and Binance, you can invest in some of them and make a fortune. For example, the CryptoPunk 1422 NFT, which a collector bought in 2017 for $74, was sold for $2 million in 2021. Can you believe the incredible profit he made?! However, before you begin this alternative investing option, you must first learn how investing in NFTs works.
2022 was an economically challenging period with high inflation globally, putting all businesses to the test. Historically and theoretically, only the best of the best companies survive such trials! This is the case with the cryptocurrency industry at present.
Several well-known crypto trading platforms, including Celsius, FTX, and Nuri, have filed for bankruptcy in recent months, dashing the hopes of many investors.
Despite the shocks in the cryptocurrency market since the latter part of 2022, investing in cryptocurrency is still potentially a good idea if you make the right choices. That is because there are many ways to make money off of cryptocurrency.
The demand for digital currencies such as Bitcoin and Ether is still high. However, their values are not as record-breaking as they were in 2021 when Bitcoin was worth over $68,000. In December 2022, one bitcoin traded for about $17,000 or €16,000 on CoinDesk.com and Binance.com.
The mistake most investors make is to put all their savings into cryptocurrency. Yes, crypto can generate astronomically high returns overnight. But always remember that, as an extremely volatile alternative investment, blockchain-based digital assets should attract an amount you can afford to lose if things do not go well. Therefore, use your spare money for this. You can create an account with any of the best cryptocurrency trading apps to find affordable tokens to invest in.
Avoid investing in financial instruments, assets, and businesses that you do not understand. Knowledge and understanding are essential for every successful investment decision. The more you know, the better; the less you know, the riskier it is and the higher your chance of failure.
To double your money, you can invest in real estate or start a small business. But you must ensure that you have adequate knowledge and understanding of whatever you want to invest in before you begin.
Conclusion: Don’t Lose Hope!
Investors who are losing hope in the stock market may find it in any of the above alternative investments. Depending on your interests and risk tolerance, you may invest in real estate, fine art, digital assets, equipment leasing, precious metals, crowdfunding, and several other non-stock investment instruments, which we have discussed in this article. Moreover, you can set up your own business and grow your income over time.
Nevertheless, remember that making a significant profit from any investment can hardly be guaranteed because there are always risks involved. We wish you good luck!