When you ask many, they consider investing as only dealing with things like stocks and bonds. While they may not invest directly in them, they do so through a 401(k) plan or in various ETFs or Mutual Funds. Those are great ways to invest in the stock market, and do quite well for the large majority of individuals out there. However, there are several other alternatives to consider to the traditional investing model. Depending on your risk tolerance, these can provide opportunity to build on what you’re already doing to further maximize your wealth building.
Before I go on with some of these alternative investments, I will point out that they can be incredibly risky if you’re not educated as to how they work. Even then, they can carry significant risk. Risk isn’t bad, per se, but it can be if you’re not fully educated as to how different investment vehicles work. With that out of the way, we’ll take a look at some of the alternatives to strict investing in the stock market.
Investing in Options
Options investing is likely my favorite alternative to the traditional model of investing in the stock market. In fact, there are people that only trade options. What I like about options trading is you have a choice between going more conservative vs. going more risky. The other thing I like about options is that it can require little in terms of cash outlay in order to invest in them. Why is this? It’s because you’re not investing directly in a stock, but the right to buy or sell a given stock.
You might be asking why you’d invest in something like an option. One of the main reasons people do is because it gives them access to a stock that trades too high for them to purchase. I did this several years ago with Apple. I bought the right to buy 100 shares at $650. The stock was around $400 at the time, but I had a feeling it would go up. The stock went over $650 and I turned around to sell the option. This allowed me to net a little under $4,000 on the trade! That is definitely not the norm, but was a nice gain nonetheless.
Another option to the stock market to consider is spread betting. Through spread betting, you’re not buying a holding rather you’re betting on whether or not a given product will fluctuate in value. This method of investing has grown in popularity over the past few decades, though like options trading is not really for the weak of heart. There are a number of reasons for that, largely going back to the speculative nature of it.
What I like about the idea of pursuing this route as an option is that you can use leverage to speculate on a number of investment products like indices, commodities, treasuries, etc. If you’re advanced enough in your investing knowledge, this can be a nice way to grow out a small part of your portfolio. As with any investments you pursue, you will want to make sure you pick the right platform for you in order to find one you’re comfortable with.
The other alternative to traditional investing in the stock market is forex trading. With forex trading you’re trading in currencies from around the world. If that sounds somewhat risky to you, that’s because it is. 🙂 However, I’ve seen many people do quite well at it. One major reason why investors choose to trade forex is that currencies trade nearly 24/7 and can do so from around the world.
Like with the previous two alternatives, there can be considerable risk associated with forex trading, but there can also be decent reward. If you’re looking to do some forex trading, I would recommend finding an online brokerage which offers paper trading of forex. There are a number that do and can be a great way to try it first without the fear of losing your shirt.
Investing in the stock market, or anything else for that matter, can carry great risk but can also provide great return. Before you choose an investment vehicle make sure you educate yourself as to how it works in order to make sure it fits with your risk tolerance.
Photo courtesy of: Perpetual Tourist
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