“The US dollar is going to collapse, don’t put money into the stock market!”
Have you ever heard similar advice? I’m sure you have. And for good reason.
The US dollar is economically weak, but politically and realistically strong — a weird combination, but it’s true.
We often hear we should diversify, because we don’t want all of our eggs in one basket, but diversity in four stock mutual funds isn’t diversity. It’s diversity within the stock market, but it’s still… within the stock market.
What Diversity Really Means
I love the stock market, but I also love diversity, because I love investing and investing without diversity is illogical.
There’s diversity, and then there’s diversity within diversity. Diversity in investing means owning several types of investments. Diversity within diversity means owning several types of each investment. Owning stocks across several sectors, different types of bonds, and cash accounts is great diversity within the paper asset class, but that’s all it is.
True diversity has to span asset classes and forms of investments.
Warren Buffett has been one of the most famous and longest-running advocates for the stock market. That’s where he made his money, and he recommends it as the easiest way for you to make money on your investments. But even Buffett has diversification outside of the New York Stock Exchange.
Buffett’s Investing Rules
Here are a few examples from Buffett’s letters:
“Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on.”
Many of these comments pertain to Buffett’s farm and the piece of commercial real estate he bought in New York. Whether we’re talking about a dividend stock or a farm, there are plenty of universal investing principles.
There are always two basic types of investment: investments that produce and investments that don’t.
That means you have three ways to make money when you invest:
- You can make money from what the investment produces
- You can make money from what the investments becomes worth
- You can make money from a combination of the two
That covers any investment I can think of. The terms may change, but in the end, you’ll be earning money in one of the above three ways. The stock market gives you the opportunity to use one or all of these ways to make money, and so do plenty of other investment opportunities.
Back to what Buffett says about his his two non-stock investments mentioned earlier:
“With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations.”
According to Buffett, what an investment produces is much more valuable than what the investment itself is actually worth. This idea is easily explained in the stock market by looking at dividend stocks, but how do other types of investments “produce?”
Investments can produce in several ways; a farm produces a crop, meat, dairy, or something along those lines. Real estate can produce cashflow through rental income.
There are all kinds of ways investments produce.
Let’s look at one more universal investing principle from Buffett, and then we’ll get into how you can start investing without the stock market:
“My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following — 1987 and 1994 — was of no importance to me in making those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.”
It’s funny how these ideas that are often thought of as “stock market investing tips” can span asset classes. That’s my point. Look at most investing principles universally and apply the principles to the following ideas…
Investing Without the Stock Market
I highly suggest diversifying your portfolio to include some of the following. You don’t need everything here, but I recommended at least trying a couple.
If you’re investing outside of the stock market because you’re afraid the market or the US dollar is going to collapse, I have bad news. If the dollar or the stock market collapses, it’s going to affect other investments.
It would affect everything… in the world.
If you’re truly worried about the dollar collapsing, I suggest investing in skills and friends. Skills will always be valuable, even if the world economy collapses. If something catastrophic happened, you would want to know how to do things that people will pay you for and you would want people on your side. However, my advice is, worrying helps nothing.
And don’t forget…
“For the Spirit God gave us does not make us timid, but gives us power, love and self-discipline.”2 Timothy 1:7
Whether you’re afraid of the stock market or just looking for some more diversity, here are some options you have for investing…
1. Hard Assets
Commodities like gold and silver are the old “go-to” alternate investment options.
The only problem with these is that they don’t produce; the hope is that the value increases, but it doesn’t always.
It’s good to have some hard assets, but I personally wouldn’t go as far as backing a 401(k) with them. Between gold and silver, I personally prefer silver, but the choice is up to you.
Gold is definitely the most popular way to invest in hard assets.
here’s what Investopedia says about gold:
- Goldbugs have often encouraged investors to own the precious metal as part of a diversified long term investment portfolio.
- Gold is seen as a hedge against inflation and a store of value through thick and through thin.
- Holding gold, however, comes with unique costs and risks, and the data show that historically gold has disappointed on several of its purported virtues.
When you invest in bonds you’re investing in debt.
That may not sound pretty, but it’s a legitimate investment. In Your Money or Your Life, Robin and Dominguez go into depth about how investing in bonds helped them into early retirement.
I’m not a big fan of buying bonds straight from the government or from companies themselves, because it can be difficult and it’s typically more of a manual process. But you’re in luck, because vanguard and many other companies offer great bond funds.
Here are some of my favorites:
- Vanguard Long-Term Treasury Index Fund
- Vanguard Intermediate-Term Bond Index Fund
- Vanguard High-Yield Tax Exempt Fund
Out of those three, we are invested in the high-yield tax exempt fund. And yes, if it’s not obvious, I prefer Vanguard. Based on the low fees and excessive options, they are simply the best.
Angel investing is the main way to find good invention ideas, or just talk to people you know. You might only be a couple degrees of separation from an inventor who’s looking for investors.
When you hear of a good Kickstarter fund for an invention, contact the inventors and ask them if they have investment opportunities. It could be anything from a new device to a board game.
I have a friend who invests solely in inventions and it’s worked well for him. It takes some research and a lot of time, but it could pay dividends!
4. Real Estate
Real estate will always be worth something. Everyone has to live somewhere.
You can invest in rental properties that will produce an income, or you can buy raw land in hopes that it will increase in value.
Just keep an eye on your taxes and make sure to pay them. Commercial real estate is another option, but do your research first!
If you are going to get into real estate, I suggest heading over to the best real estate blog on the internet: BiggerPockets. I promise you’ll find the answers to all of your questions.
5. Small Business
It’s true that most small businesses end up failing. In fact, “20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business. Finally, 70% of small business owners fail in their 10th year in business.”1
But if you really know of a groundbreaking local business, it’s worth a shot.
You know the local market better than outsiders; use that to your advantage.
If you think you’ve found the next Apple, you could be in for some big returns… of course you could also lose everything you invest.
Greater rewards come through greater risks.
6. Peer-to-Peer Lending
You can loan money to your brother-in-law and tell him to pay it back with interest.
However, that may be the last time you ever see your money or your brother-in-law.
Fortunately, there are ways to take advantage of peer-to-peer lending with less risk and without lending to people you know.
LendingClub and Prosper are two of the most popular options, and the offer quite a bit of protection. Similar to the protection of a mutual fund, they will spread your investment across many different peers, so you’re not lending your money to one person.
Sports cards, stamps, model cars… almost anything is collectible if you can find a buyer and if you can keep it in mint condition.
This is more of a hobby than anything so you want to be sure you’re interested in whatever you’re collecting. But remember, for collectibles, without a buyer, it doesn’t matter what it’s “worth.”
Use that to your benefit when you’re buying collectibles, and you will have an easier time selling them down the road. Often, due to how long it takes for some collectibles to become valuable, consider leaving this as a legacy to your children, possibly even for their children. But be careful not to leave a bunch of junk your children have to store, just because you saw it as “collectible.”
8. Antiques and Art
Similar to other collectibles, antiques and art are only worth what someone will pay.
However, there is a large market for both of these things.
The most important thing here is to do your research. A well-researched buy can outperform the stock market any day. An uninformed buy can be the biggest burden in your portfolio.
There is a lot of information out there to start investing in antiques and art.
It’s actually possible to make between 6% and 15% annually by investing in wine.
You need to know a lot about wine, such as which wines are worth the most, how to store it properly and where to buy it, but this investment can definitely pay off.
Of course, you need to make sure you’re not going to be tempted to drink it all.
This can go one of two ways. It can either be a lifestyle investment by buying and working a farm yourself, or it can be a capital-only investment by owning a farm that is run by someone else.
You’ll usually have to go in and get the process started yourself, but it can be a profitable investment once it’s up and running.
Remember, this is one of the alternate investment options Warren Buffett uses.
It Doesn’t End There
These aren’t your only options. Of course, you can always put your money in “high-yield” savings accounts or “invest” in CD (Certificate of
Depression Deposit) ladders, but the rates of return are so low, it’s not much of an investment.
There’s also forex and cryptocurrency, but both of those take a lot of research and too often end poorly, so be careful. That’s why I didn’t put them in the list. But they are options.
If you’re just looking to get out of the US stock market, there are plenty of stable foreign stock exchanges, but again, those exchanges are still affected heavily by the US stock market.
It’s great to invest outside the stock market for diversity’s sake, but not for worry’s sake.
Further Book Reading
- Your Money or Your Life by Dominguez & Robin
- All About Investing in Gold by Jagerson & Hansen
- Step by Step Bond Investing by Joseph Hogue
- Investing in Fine Wine by Alex Andrawes
- Angel by Jason Calacanis
- The Book on Rental Property Investing by Brandon Turner
- Investing in Real Estate by Gary Eldred
- The ABCs of Real Estate Investing by Ken McElroy
- Investing in Patents by Russell Krajec
- The Expert’s Guide to Collecting & Investing in Rare Coins by David Bowers
- Investing in Vintage Baseball Cars & Other Sports Cards by Robert Jeffries
- G, McIntyre. (2020, September 14). What Percentage of Small Businesses Fail? Fundera.