When the markets are overvalued, such as now, we value investors tend to stay on the sidelines. First, there are not many good deals to be found, and second, the cash we have is worth more when the market crashes.
Still, the stock market is not the only place to invest money. Perhaps there are other sectors of the economy where you could invest with little or no correlation to the stock market?
Here we look at a few such possibilities.
1. Real Estate
One can break down the real estate in many different segments. Each segment has a different correlation with the overall economy. If you are worried about an economic recession coming soon, it makes sense to avoid commercial real estate (retail, hotels, warehouses, etc). Perhaps even the single family homes segment will be affected if people lose jobs and unemployment ratchets up.
There are some segments of real estate that will likely stay unaffected, or even benefit.
For example, multi-family rentals or apartment complexes can do well as families choose to rent over owning a home. You don’t even have to put down a large chunk of money to invest in one of these apartment complexes. Choices now abound. For example, you can start an investment with DiversyFund for just $500 and the fund will pay you your share of the income from the rental income they receive from their owned properties.
If you are looking at other REITs, I like the health care REITs. These tend to be less affected by recessions as the demographic trends are a bigger driver, and people will continue to age and require more medical services. Hospital REITs can be good options too.
2. Peer to Peer Lending
You can sign up with Prosper.com or LendingClub.com and invest in notes. These notes fund personal loans and the borrowers are generally vetted for credit worthiness. You can choose your investments based on the risk you want to be exposed to. Every once in a while some of your loans may default, but on average if you have a diversified portfolio, you will be profitable and can compound your investments by re-investing the interest and principal payments you receive from the notes.
I have been investing with Prosper.com for over 10 years now and have done quite well.
In recessionary times once can expect more borrowings but also greater number of defaults. The interest rates can be higher as well. You may consider lowering your risk profile as the economy goes into recession.
3. Buy Solid Dividend Paying Stocks
You want to pick stocks that have a long history of paying and even growing their dividends. You also want to pay less, so good values are what you are looking for. We are counting on the possibility that the stock prices may decline but the dividends will continue to be paid at the same or higher levels. Set your portfolio up to reinvest the dividends in additional shares (most brokers will do this for you for free). This way over time you will keep compounding, and if you have chosen your stocks well, they will appreciate in price as the cycle turns around.
I am working on starting a new service based on dividend based portfolios. If you are interested in becoming a charter member at a very low introductory price, please stay tuned. Current Value Stock Guide Premium members will receive these portfolios with my compliments. More information will be available soon through your email. Feel free to email me your interest (sk @ valuestockguide dot com).
4. Start Your Own Business
Value Stock Guide was conceived and started in the middle of the 2008 recession. In fact, many of the other successful companies were started during recessions. Entrepreneurship generally provides almost unlimited ROI if you are able to scale and grow your revenues and profits. There are considerable risks as well and this keeps many people away.
Now of course, starting a company is easier than before. With the ease comes a lower barrier to entry, and that means higher competition. If you decide to start a business, whether you do it full time right away, or start it on the side, you want to start on the right foot. Based on my experience, I have listed some guidance for you if you want to start your business online.
5. Go into Cash/Invest in Treasuries
For the most risk averse, this is a great option. You want your money to keep working, even if it is little, so I would recommend atleast buying treasuries. You can do this via mutual funds or ETFs such as SHY.
More and more investors are now asking where to invest money as the markets seem to be at the heights that make most reasonable investors uncomfortable. One or more of these 5 options should help you figure out your strategy.