Where Would You Invest if You Didn’t Trust the Market?

I was thinking about my lack of risk tolerance the other week and I thought to myself that I can’t be alone.  I am only 30 but in the 12 years since I have become an adult I have seen 9/11, the dot-com crash, housing crash, credit crunch, unemployment rate nearly double, Euro Crisis, commodity correction, and I am sure a few other issues I can’t think of right now.  It didn’t take me long to find out that I am not alone.

Some excerpts from a Forbes article/study from late 2011,

  •  40% of Gen Y investors are reported as agreeing with the statement, “I will never feel comfortable investing in the stock market”
  • 52% of them liquidated a portion of their portfolio in 2010 or 2011 due to market concerns
  • They have thirty or forty years before they need the money but they are using reactive short-term strategies rather than implementing proactive long-term strategies
  • The average Gen Y investor has 30% of their assets in cash,
The rest of the article, and articles like it, shift the focus on telling Gen-Yers, that this time it is different and the only chance they have to survive and thrive financially is to get into the market.  What about those that have already given up?

Options to Invest in Other Than The Stock Market

I am obviously not as fearful and distrusting as the people who answered the Forbes Survey since I have money in the market but I think there is an absolute need to know what alternatives one may have besides just socking cash away in a savings or money market account.

Some investment opportunities that do not include the stock market:

  1. Rental Property – There is no shortage of information on the topic of real estate investments.  I hope to buy my first piece of rental property in the next few years.
  2. Starting or Buying a Business – Talk about non-specific, but most of the businesses in America have little direct involvement with the stock market.  I recently professed a business I’d like to own day.
  3. Guaranteed Insurance Based Investments – I think insurance based investments like annuities or guaranteed protection products like whole life will become more and more popular as this generation of  non-risk takers become older.  These types of investments may or may not be tied to the market in terms of the actual investment (see: fixed annuities vs variable annuities for example).  One must also consider that the insurance company might be providing you with a guarantee but they are investing in this list as well as “the market.”
  4. CDs – I questioned whether to put certificates of deposit on the list since it is a cash equivalent investment, but they usually provide more of a return than a savings account.
  5. Debt products – Whether we are talking about corporate debt, sovereign debt, or even asset back debt they are can be owned with little connection to the “stock market.”

What other alternatives are out there?

36 Responses to Where Would You Invest if You Didn’t Trust the Market?

  1. I didn’t see the currently popular Precious metals on there. Personally I think it is a good idea to have some invested in physical PMs, but not a lot.

    I guess the debt products would probably include lending club and the like.

    • You mean like owning actual gold or silver? I never really understood the movement. It seems like you are getting hit hard core with fees and if the zombie Apocalypse hits then what the hell is gold going to do?

      Do you have some at home? Where did you buy it?

      • Gold and silver are more about fiat currency than zombie apocalypse. ;-)

        But most people hear “economic collapse” and think all out martial law. In which case, bullets would be a better currency than gold…

  2. I like rental property the most. I also invest in peer to peer lending. See today’s post for a bit more info. I don’t think you would like that because you’ll see defaults. I’m getting 11% right now and that’s a lot better than CDs.
    I don’t like annuity, but I don’t really know why. I guess I like a lump sum better.

    • Add the link! I am always happy to share the spotlight.

      WOW 11% Returns! That is unreal. 11% doubling every 7 years is freaking crazy. How many defaults do you have? Does your 11% include the defaults?

  3. great post buddy. as a Gen Y-er as well I often ponder the same. a lot of money accumulated is good, but can lead to sleepless nights when you don’t know where to put it -

    I agree with precious metals as well as private equity – which can be on a smaller level like peer to peer lending.

    #1 and 2 are solid. good times or not so good, there is a lot of $ to be made. in fact, for our Generation real estate has been great. depressed values, increased rental demand, increased rates, at least in the markets I am in.

    the same goes for small business. I purchased a brick and mortar business prior to 2008 and it has done just fine throughout.

    to answer your question, I’d put my money in many of these avenues as long as I truly understand how they work. as long as I am diversified I think I will be ok.

    @ Kathleen, while EM was the biggest gainer for me in 2010 and 2011, it’s been the biggest dud thus far in 2012

    Evan – I don’t understand #3 that well. do you have a clear and comprehensive resource you can point me to? have studied this quite a bit and just can’t to find anything good – but maybe that’s because of my lack of knowledge about the material?

    • I didn’t even think about private equity! I think it is because it is so far removed from my life. I couldn’t imagine writing a check to a PE Firm, not because I don’t think it is a good idea, but rather I can’t imagine having enough cash just yet

      Search my site for whole life and annuities as a start!

    • Rental properties could crash also. It may seem unlikely at this moment, but when the current weak employment trend turns around and people find jobs again, housing may pick up and lead to a decline in rentals…

    • When you say invested in furniture, collectibles and art did you buy with the hope to sell? Did you end up selling?

  4. My wife also has similar feelings given the track record she has had with investing. I think she is slowly getting confidence back as we build up our retirement funds. I think you covered the big ones – we plan to use rental properties as well.

    • When you say her record – I’d love to hear about some stories (minus any details that might force you to the couch of course)

  5. Rental Properties – headache? yes, but I think there can be some money to be made over time. It just takes money, a decent place, and really good tenants to make that goal.

    I also have been messing around with LendingClub – a peer to peer lending site. It is an interesting site and way to make money. I like to think I am helping good honest people…hopefully no one defaults!

  6. It is cheesy to say but you can always invest in yourself. Additional training or education can pay off.

    I am invested in real estate, CDs, stocks and have done P2P lending before. I didn’t like how non-liquid P2P lending was although I see they now have a secondary market for portfolios which seems like a nice solution.

    I also like what krantcents said about antiques and collectibles. We have a few of these and they haven’t paid off yet but maybe they will in another 10 years or so.

    • “It is cheesy to say but you can always invest in yourself. Additional training or education can pay off”

      NO WAY IS THAT CHEESY! You are 100% correct Virginia and I am actually a little embarrassed I didn’t come up with that one.

  7. I have recently just gotten into figuring out how to invest our money. I held off for 2 years so I could get our emergency fund fully funded. For me, all the investing options seem so overwhelming and I am very risk adverse. So, until I feel more comfortable with what investing avenues are right for me I’ll be paying my mortgage off faster. Makes the most sense since our rate is 5.75%, we can’t refinance, and we don’t itemize our taxes. Our current house will eventually be a rental property so I feel like paying it off fast is what would be best for us currently

    • Not a bad move – why can’t you refi? underwater or credit issues? Have you run the numbers yet?

      The problem I have with paying off a mortgage that quickly is the lack of liquidity

      • We owe what our house is worth. So in order to refinance we’d have to put a significant amount of our emergency fund into it to pay it down. So we could refinance but its not worth it to dip into the emergency fund so much. So I’ll make extra payments on the mortgage until we get to a point where we can refi without using up those fund. Then I’ll stop making extra payments and put that money elsewhere

  8. I don’t trust the market. But I do trust cash flows. So two things I’d invest in if I was bearish on the market are:
    -Companies where very little top line growth is necessary for decent returns (high yield stocks, companies that send all their cash back to shareholders as dividends or buybacks, etc.)
    -Selling options to generate income on companies.

    Apart from that, I’d invest in rental properties and personal business opportunities. Not too much in cash, but enough for ample liquidity.

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