Great Ways to Diversify Your Portfolio Away From Stocks for the Next 5 years

There are many reasons why the current bull market in stocks is not over. The main reason is that the U.S. (and global) economy has been growing nicely. Although economic conditions are beginning to deteriorate and a recession is inevitable. As a result, you may want to diversify your portfolio and not completely rely on stock and bond index funds.

Equities are usually not the most profitable investments in the last few years of a bull market! Rising inflation tends to result in choppy gains for the S&P 500 like it did in 1979 and early 2007. There are some alternative investments that perform very well in inflationary environments.

Private Real Estate

Thanks to the Internet, it’s never been easier to invest in real estate. Physical real estate investing is no longer for millionaires, aspiring landlords, or house flippers.

Buy Rental Property or Flip Homes

Are you thinking about buying a rental property?

Over the past century, real estate has been flat when adjusted for inflation. This means that real estate at least holds its value when inflation is rising. However, there is a very important reason why real estate prices around the world will continue to spike this time.

The following statements were originally written in April 2017 and may not be 100% accurate in late 2019:

Real estate markets in the world’s largest cities are being flooded by Chinese money. Cities such as New York, Sydney, London, and Singapore are seeing something like 50 offers for every apartment/house, and all of these are cash offers!

The money flow from Chinese millionaires and billionaires leaving China is like a tidal wave, and their buying will only push real estate prices much higher in the years to come.

In the past year, there has been a slowdown in global real estate gains because less money has been leaving China. This is because the Chinese government instituted capital flow controls that slowed down the pace of money leaving China for greener pastures.

But as of March 2017, the Chinese government is making a big push into domestic and foreign. Like Japan, China wants to invest in infrastructure all around the world! This will involve a joint venture between Chinese private and public funds. To accomplish this goal, the Chinese government will have no choice but to loosen capital controls, thereby allowing Chinese money to once again flow into real estate around the world.

Crowdfund Real Estate

If you have as little as $500 and a 5+ year investing horizon consider investing in crowdfund real estate. You can directly invest in multi-family residential and commercial properties. And you don’t have to play landlord or property manager. Instead, you invest with other real estate investors and can earn landlord-like returns with less stress.

There are several platforms you can try. Each has a slightly different investment philosophy, so choose the one that best fits your long-term goals.

Fundrise

I personally invest in crowdfunded real estate with Fundrise. You don’t have to be a high net worth “accredited investor” and the minimum initial investment is only $500. They invest in private real estate in large cities across the United States.

RealtyMogul

RealtyMogul is one private real estate investing platform for non-accredited and accredited investors.

The non-rich (aka non-accredited investors who make less than $200,000 annually or have less than $1 million liquid net worth) can invest in REITs that hold a basket of properties nationwide.

Accredited investors (i.e. “the 1%”) can invest in private placements for individual properties. You can even do 1031 exchanges to avoid paying unnecessary taxes.

stREITwise

Invest in office parks with a starting $1,000 balance using stREITwise. Actual tenants that occupy stREITwise investments include Verizon Wireless, Panera Bread, Nationwide Insurance, and IBM. Previous offerings also let you invest in multi-family and hotel properties.

The current offering (as of 9/24/2019) is the 1st stREIT Office. It invests in office and mixed-use properties with a target 10.0% dividend rate. You only need to commit $1,000 to start investing in the private real estate fund.

Before you invest in any stREITwise offering, read the offering circular. This is like a mutual fund prospectus. Read it to understand what you’re investing in, how you can make money or lose money, and any potential fees.

Bonds

In the short-term, the inverted yield curve means short-terms bonds yield more than long-term bonds. And you also have to avoid negative-yield bonds.

If you don’t want to invest in publicly-traded corporate bonds, you can invest in small business bonds. StreetShares is like your high-yield savings account. In other words, you don’t have to decide which company to invest in. StreetShares invests your money in the entire portfolio.

You earn 5% APY and only need $25 to start investing. As interest rates continue to trend lower, this 5% rate seems more attractive. Both non-accredited and accredited investors can invest. You can make penalty-free withdrawals after 12 months. The early withdrawal fee is only 1% if you need your cash sooner.

Commodities

Commodities soar when inflation is rising. This is what happened in the 1970s and 2000s. Also, pay attention to how gold and silver have performed in 2019 year-to-date.

Rising inflation means that the nominal value of physical assets goes up. Hence investors dump cash in exchange for physical assets such as commodities like gold, silver, oil, copper, and natural gas. Since many commodity markets are smaller than equity and forex markets, they are easily manipulated. When traders realize that commodity prices are on the rise, they all rush in to buy at once, which results in massive price spikes like those of the late 1970s and mid-2000s.

Tip: Use these free investing tools to decide if commodity stocks are overbought or still have potential.

Investors in previous decades tended to shun commodities because investing in them required buying futures contracts. Futures are too risky and complex for an investor like myself to use. But with the rising popularity of ETF’s, one can easily “invest” in commodities such as oil or precious metals in the long term. Buying a commodity ETF is basically just buying shares in a company that holds and stores these commodities. For example, GLD is the most popular gold ETF and USO is the most popular crude oil ETF.

Tip: Trade Commodity ETFs for free with M1 Finance! And, get a $10 bonus when you join!

Own Physical Gold

If you have the cash, consider buying real gold and silver. I personally use Vaulted. You can buy partial gold shares starting at $10. You can even pay $50 and they will ship you a real gold bar (or gold coins for smaller quantities).

Having a tangible asset is real wealth. Even in a recession, the various stocks of royalty companies, senior and junior miners, and commodity ETFs may drop. Plus, you don’t actually own the gold, silver, platinum, etc. Those goods are in another person’s vault.

Foreign Currencies

If you plan on holding a lot of cash, consider doing so in ex-US currencies. This means that perhaps it is wise to hold Euros, Canadian dollars, and Australian dollars.

Josh’s thought: Owning foreign currencies is outside my level of expertise. Please become familiar with forex before you swap U.S. dollars for another currency. I would rather invest in foreign companies that trade on the U.S. stock market to get “foreign exposure.”

History shows that the U.S. dollar tends to go down during times of rising inflation. This happened in the 1970s and mid-2000s.  The currencies of commodity-producing nations such as Canada and Australia perform particularly well during inflationary periods because the value of their commodity exports soars.

Are you thinking about investing in forex?

Invest In Yourself

Instead of investing in another company to earn passive income, invest in yourself. Maybe your current job isn’t recession-proof or you want to get debt-free so you don’t relive the turmoil of 2008 your parents or relatives endured.

If you have free time, now is the time to start a side hustle. Whether you just need the extra money to pay off debt or you want to eventually replace your current full-time income stream, I’m a huge fan of income diversification.

Summary

We can’t predict the future. But we know the next 10 years of stock market returns probably won’t be as good as the last 10 years since 2009. Hopefully, Wall Street’s estimates are wrong. But it doesn’t hurt to think about something besides only investing in stocks if you want to earn passive income in any market.


This post was originally written in April 2017 by Troy from BullMarkets.co. The information has been updated as much as possible to reflect current market sentiment. However, rapidly-changing current events mean you should still perform your own due diligence before investing in these stock market alternatives.

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