Five Ways to Invest Without Buying Stocks


From 2001-2006 I lost over a quarter million dollars trading stocks, options and currencies.

I was pretty much the dumbest 20-something ever.

Fast forward to today, and I’ve dug myself out of a pretty darn big debt hole, recently got married, and have even begun investing again.

Just not in stocks.

I know I’m not the only one to get burned by the markets, and lets be honest, most of my losses were due to my own actions.  But still, there are plenty of people who are looking for investment options outside of Wall Street.

I’m still playing it pretty safe, but here’s 5 investment options that I’ve been looking into, and a few I’ve tried out already.  Take these with a grain of salt, I’m not exactly Warren Buffet.

1. Lending Club

Investing without stocks

There are a number of ways to invest besides buying stocks.

Lending Club is a company that allows you to play the bank.  It attracts borrowers looking for up to $25,000, and then Lending Club investors fund the loan (Note) in increments as small as $25.

I’ve invested quite a bit in borrowers through Lending Club, and so far my results have been positive, but I have had some defaults.  I think the key is diversity.  If you invest just $250 into one loan…well, that’s quite risky.  But if you invest in 10 loans of $25 each, even if one defaults, with an APR of 10% or so you’ll at least still break even.

Lending Club isn’t for everyone, but I’ve found it an investment that allows me to sleep at night.

Click here to go to Lending Club and see what they are all about.

2. Real Estate

I think it takes a certain personality type to be a real estate investor, and then another type to be both an investor and a landlord.  If you have enough money, you can outsource the landlord part, but your returns will be lower.

My wife and I have agreed to avoid real estate investing, even though in many markets right now you could cash-flow (cover your mortgage) some properties with rental income.  We would only be able to afford one property investment, and I don’t want to play landlord.

There are thousands of “short sales” on the market right now where the bank will have to sell the property for less than they are owed.  They take time to close, but if you have the patience of a kindergarten teacher, you could pickup some homes for a steal.

3. Side-Business

Every body is good at something outside their day job.  And usually that talent can be turned into a side-business.  When I was in my teens, I had a strange love of lawn-mowing.  So I dropped 100-fliers around the neighborhood and picked up 3 weekly clients with about 2 hours of marketing work.

Creative?  Check out Etsy.  Like to workout and enjoy people?  Do personal training on the side.  Huge snowboarder? Offer private lessons.

There are thousands of side-business ideas out there, but find one that plays to your strengths.  You’ll be more likely to stick with it, and find that your investment will pay more than just financial dividends.

4. Revenue-Generating Domains

If you don’t know what a domain is…skip this section.

Domain name investing is only for the well-informed.  Think of a domain-name (freefrombroke.com for example) as a piece of land.  Some land is much better (Waterfront!) than others (next to the Coal plant!).  And some land can produce cash-flow (timber for example).

A good domain can earn advertising revenue from type-in traffic, or people directly typing in your domain name.

These domains aren’t cheap, but a revenue-producing domain name will often sell for anywhere from 2 -20 years annual earnings.

My advice here: If you’re a web nerd, and this interested you, look at names above the $5,000 range at minimum.  Anything less and you’ll have a tough time earning much from type-in traffic.  High value domains are auctioned off dozens of times a year in live and web auctions. Checking out domaining.com for news on auctions and domain investing.

5. Angel Investing

Would you like to help start-up businesses in your local community?  If you live in a large enough market, there is probably a local angel investing chapter near you.  Angel investors must be accredited (1+million networth or 200K+ in annual income the last two years).

Angel investing is very risky.

When I was just out of college I raised money from some family friends for a company I was starting up.  It got pretty hairy and I came very close to not being able to pay them back.  I did, but their total return over 3 years was about 5% total.  So, not exactly the best return for the level of risk they took.

While I haven’t done any angel investing myself, at some point in my life this is something I would consider as an alternative to stocks in giant corporations where I have no influence.  At least with a local angel investment in a company I am familiar with I might be able to provide some value to the founder and help move the company along.

Bottom line: You need to be creative when investing outside of the stock market.  Most non-mainstream investing is very illiquid, so be prepared for the long haul.

What other alternative investments have you looked into or are invested in?

This is a guest post from Debt Kid, who after day trading away over a quarter million dollars found himself in some serious debt. He’s been blogging since 2007 about his journey to get out of debt.

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Published or updated March 2, 2014.

Comments

  1. I love Lending Club and like you mentioned I only invested $25 in each loan to spread out my risk. I just recently put more than $25 into one loan but I know the individual who requested the loan and since I know the budgeting and spending habits I know my money is safe there.

  2. Never heard of lending club, think I’ll check it out, sounds like a great way to invest small amounts of money without having to learn about stocks.

  3. I think diversification is key, but some of these options are just as risky as stocks (with Lending Club, the risk is default).

    I actually use Prosper instead of Lending Club, but it fits into my overall portfolio.

    • You always need to know the risk of an investment. But it’s good to know there are options besides stocks for investments. Overall the stock market hasn’t done a whole lot the last decade.

  4. I like #2 the best if you have some capital. It’s a great time to get into real estate right now. Rent will only go up.

    • You have to be careful and know your area with real estate. There are too many factors to go into here but it can make or break you. Personally, I’d rather invest in a REIT-type ETF or mutual fund.

  5. I might get burned by this one…but Whole Life Insurance. Beyond the charge for the death benefit and other fees you are basically allowing an insurance company to invest for you. The bigger ones (Guardian/MassMutual) paid upwards of 6.5 – 7% dividend rate.

    • Uh-oh, you might stir up a bee’s nest like you did with your guest article! I think whole life is largely misunderstood. A lot of that though may be the fault of insurance companies and the good ones need to do a better job of explaining what whole life is and what it is good for.

  6. Angel investing is just like the stock market, but you have to do so much more homework and you own so much more of both the risk and rewards. If you plan to angel invest, make sure you so totally believe in the idea and the people behind it that you want to invest more than just money.

  7. Very interesting ideas! I had not heard of Angel, but then again, I don’t qualify!

    I have lost a bit in the stock market too, but I do like the way it has rebounded somewhat. I am looking more toward investing in dividend stocks, and trying to decide which avenue to pursue. (individual stocks, mutual funds, etfs, etc)

  8. I’d love to read a full post on Lending Club. Including the defaults, what kind of returns have you had over time? (If your sample space is large enough). Also do you know what the current default trends are like?

  9. Personally I love lending club… I’ve invested with them for years. To be honest I was scared at first – seemed like a scam. But, after some great returns I highly recommend them.

  10. FFB, how do you personally invest your money sir? I have read what you wrote, but I am more interested in what has been demonstrated by you.

    • Well Sean, this particular article is a guest article.

      I haven’t gotten into details of how I invest on this site. I have a traditional and Roth IRA as well as a stock portfolio outside of IRAs (containing ETFs and individual companies). I also have savings and checking accounts.

      Other investing – my business, education, insurance (well, more protection really).

  11. I’m into protection investing now too. Was seriously into futures and penny stocks for many years. Very draining. Now I’m into alternative investments and a whole lot less stress. Good luck growing your nest egg. I also learned from the guest post, Thanks!

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