Recession this, recession that…
Hard to find any news today that doesn’t focus on the recent stock market turmoil, the inverted yield curve, or the likelihood of a 2019 recession.
With so much negativity in the air, many investors are turning away from the stock market altogether.
You may be thinking along these lines, too.
But, if not the stock market, where do you go?
Here’s what I see as your top three alternatives today:
1. Real Estate?—It’s Easier To Invest Than You Might Think
The most common alternative to stocks is the real estate market.
I began my career in property… and, if my passion for the stock market hadn’t lured me away, I’d probably still be doing it.
You already know the three most important words in this business: location, location, location.
But, two other words are just as important: price and quality.
It’s easy to find something in the best location. But if you pick a property that’s way overvalued, it’s going to cost you in the long run.
Build quality is equally important. I can’t tell you how many houses I saw—in excellent locations—that were selling for an attractively low price. While experienced buyers would recognize the warning signs, a naïve buyer could easily be trapped. These properties typically require complete remodeling—a price that’s difficult to estimate and can keep growing as you discover new inefficiencies.
Finally, investing in real estate doesn’t mean you must spend hundreds of thousands of dollars or take a loan to make a purchase. Thanks to real estate investment trusts (REITs), anyone can break into this sector for just a few dollars.
2. Certificates Of Deposit (CDs)—Ideal For Preserving Capital
Certificates of deposit (CDs) are a great option if you’re interested in capital preservation.
The key here is to shop around, because different banks offer different rates. I suggest you use Bankrate to find the best one. It has an intuitive search engine where you can compare different banks based on various factors such as deposit term, amount, and zip code.
Moreover, CDs fall under the Federal Deposit Insurance Corporation’s (FDIC) protection, which insures your deposit up to $250,000.
3. Bonds—One Of The Safest Options On The Market
Bonds are another ideal option for investors looking to preserve their capital.
The safest and most liquid bonds are those issued by the U.S. government. They come in different maturities ranging from one month to 30 years.
The return on the government-issued 10-year bond, for example, has averaged 2.32% over the last five years.
If you’re looking for a higher yield and don’t mind the additional risk, consider municipal and corporate bonds.
Bonds also come with a credit rating determining the overall financial health of the issuing institution. I suggest you stick with those that carry an AAA or AA rating.
Finally, if you don’t wish to wait too long for the bond to mature and pay out your principal, I recommend using a bond ladder strategy.
In a bond ladder, maturity dates are spaced evenly apart, allowing you to reinvest proceeds at regular intervals. This way, some of your bond funds are always maturing, making your holdings more liquid.