Alternatives to Investing in the Stock Market

May 10, 2012 / Marianne Clements / 4 comments

Confidence in the stock market has decreased over the past few years especially after the stock market crash in 2008, but we need to invest for our future so what else can we do?

Consider decreasing investments in the stock market and increase investing in the following tangible assets:

Your Home – Your home is likely your biggest expense each month and will consume a large portion of your retirement income if you still have a mortgage when you retire. Could you pay your mortgage or rent if all of the money in your retirement account was gone?

Land - Land generally increases in value over time. However, even if the value decreases, it’s still a tangible asset that can be used for farming, rental or collateral for a loan.

Gold and Silver –Paper money and paper stocks/bonds may become worthless, but gold and silver coins have been valuable for thousands of years and will likely remain valuable.

If you don’t like your odds in the stock market, but you can’t withdraw your money due to high penalties or limitations from your company, you can move your money to an FDIC Insured Deposit Account within your account. This reduces the risk, but it also eliminates any possibility of earnings.

If you want to continue investing in the stock market, below are a few key terms you should know:

Stock – A piece of paper indicating your share of ownership in a company. Companies sell shares of their company to raise money and investors buy shares of the company in hopes of earning money. If a company has 100 shares of stock that they sell for $1 each, then the investor pays the company $1 per share and in return earns 1/100^th of the company profits or loses 1/100^th of the company losses.

Bond – An IOU. A government entity or company issues bonds to raise money. Investors loan money in exchange for a predetermined interest rate on the maturity date of the bond. At maturity, the investor will receive their investment plus interest. The investor may also receive interest periodically depending on the terms.

Diversification - Most people who are investing via 401K are investing in funds rather than individual stocks and bonds. A fund is comprised of stocks and bonds from many different companies and entities. The funds with higher potential for earnings (reward) usually have a greater risk of loss. Funds are generally categorized as Large Cap (e.g. Microsoft & Wal-Mart), Mid Cap (e.g. Goodyear Tire), Small Cap, International, and Bonds. Most investment advisors suggest that you have a balanced mix of these funds (e.g. 25% Large, 25% Mid, 25% Small, 20% International, 5% Bonds). Alternatively, you can invest in funds that are already balanced for a particular level of risk such as Fidelity Freedom 2040. Your fund management company should be able to give you detailed information about the funds available to you.

Consider this scripture when planning your investments and keep in mind that the stock market, while containing many funds, is really only one “basket” for your nest egg.

Ecclesiastes 11 – Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land. (NIV) Read Ecclesiastes 11