Alternatives to Investing in the Stock Market in 2025

The stock market can be a volatile and unpredictable place, especially with the uncertainties that 2025 may bring. As a result, many investors are looking for alternative ways to grow their wealth. This is particularly true for younger investors. According to new research from Bank of America, young, wealthy investors ages 21 and 43 are increasingly turning to alternative investments instead of traditional stock and bond investments. This article will explore some of the most popular alternatives to investing in the stock market in 2025, including real estate, commodities, and digital assets. 

Table of Contents

Why invest outside of the stock market?

What are alternative investments?

Traditional investments vs. alternative investments

Benefits of alternative investments

Drawbacks of alternative investments

What to consider for alternative investment planning

10 Alternatives to investing in the stock market

FAQs | The bottom line

Why invest outside of the stock market?

You might wonder why you'd consider alternative investments when investing in traditional stocks is easy and convenient. While the stock market has historically offered strong returns, it's not without its limitations and risks. Diversifying your investment portfolio beyond stocks can be a strategic move for several reasons:

• Inflation rates are skyrocketing and affecting certain investments, especially stocks
• The low-interest rates are causing much lower yields on conservative investments
• Portfolio diversification may increase your chances of higher returns
• Some alternative investments offer the potential for higher returns than publicly traded stocks
• Some alternative investments involve tangible assets, such as real estate, precious metals, or collectibles

What are alternative investments?

There are many ways to invest money other than stocks. Exactly what is alternative investing?

Alternative investments encompass a broad range of assets that fall outside the traditional categories of stocks, bonds, and cash. They represent a way to diversify portfolios and potentially access returns uncorrelated with the public markets. These investments can include tangible assets like real estate, precious metals, etc. and less tangible assets such as private equity and even digital assets like cryptocurrencies. 

The defining characteristic of alternative investments is often their complexity, illiquidity (meaning they can be harder to buy and sell quickly), and the specialized knowledge required to navigate them successfully. While they can offer the potential for higher returns, they also typically come with higher fees and risks compared to more traditional investments. 

Traditional investments vs. alternative investments

Traditional investments are the most common and widely understood forms of investing. They are typically characterized by their liquidity, transparency, and regulation. These investments are often considered the "core" of a well-diversified portfolio.

Examples of traditional investments:

• Stocks: Shares of ownership in a publicly traded company.
• Bonds: Debt securities issued by governments or corporations, offering fixed interest payments.
• Cash and cash equivalents: Savings accounts, money market funds, and certificates of deposit (CDs).
• Mutual funds: Pooled funds that invest in a diversified portfolio of stocks, bonds, or other assets.
• Exchange-traded funds (ETFs): Similar to mutual funds but traded on stock exchanges like individual stocks.

Key differences between traditional and alternative investments

Benefits of alternative investments

Alternative investments offer a range of potential benefits that can enhance a portfolio and potentially improve overall returns. Key advantages include:

• Diversification: Because their performance is often uncorrelated with public markets, alternatives can help reduce overall portfolio volatility and potentially improve risk-adjusted returns. 
• Inflation hedge: Certain alternative assets, such as real estate, commodities, and precious metals, can act as a hedge against inflation. 
• Potential for higher returns: While not guaranteed, some alternative investments, such as private equity or venture capital, offer the potential for higher returns than publicly traded stocks. 
• Reduced volatility: When one asset class is declining, others may be rising or remaining stable, smoothing out the overall fluctuations in your investment holdings.
• Access to unique opportunities: This can include alternative investment opportunities in private companies, real estate development projects, or specialized funds focused on specific sectors or strategies.

Drawbacks of alternative investments

While alternative investments offer several potential benefits, it's crucial to acknowledge the associated drawbacks before incorporating them into your portfolio. These include:

• Illiquidity: Many alternative investments are illiquid. This means they cannot be easily bought or sold compared to publicly traded stocks and bonds. 
• Higher fees: Alternative investments often come with higher management fees and performance fees compared to traditional investments. 
• Complexity and due diligence: Understanding and evaluating alternative investments requires specialized knowledge and due diligence. 
• Lack of transparency: Information about the performance and holdings of private equity funds or hedge funds may be limited.
• Higher investment risk: While some alternative investments offer the potential for higher returns, they also come with higher risks. 
• Limited access: Some alternative investments are only accessible to accredited investors or institutional investors due to regulatory requirements and the high minimum investment amounts. 

What to consider for alternative investment planning

When incorporating alternative investments into a portfolio, careful planning and consideration are essential. A well-defined strategy is crucial for navigating the complexities and potential pitfalls of alternative asset classes. Here are some key factors to keep in mind:

1. Clearly define your investment objectives and the timeframe for achieving them. 
2. Assess your comfort level with risk. Understand the specific risks associated with each alternative you are considering and ensure they are in line with your risk tolerance. 
3. Thorough due diligence is paramount. Research the investment manager, their track record, and the specific investment strategy. 
4. Evaluate your liquidity needs. Since many alternative investments are illiquid, consider how much of your portfolio you can afford to tie up for an extended period of time. 
5. Determine how alternative investments will contribute to your overall portfolio diversification. Consider the correlation of these assets with your existing holdings.
6. Consider consulting with a qualified financial advisor who has experience with alternative investments. 
7. Carefully analyze the fee structure associated with each alternative investment. 
8. Be aware of the access requirements and minimum investment amounts for different alternative investments. 

10 Alternatives to investing in the stock market

If you’re looking for alternatives to investing in the stock market, here are 10 options to consider.

1. Real estate crowdfunding
2. Rental property
3. Farmland
4. Private equity and venture capital
5. REITs
6. Private credit
7. Hedge funds
8. Digital assets
9. Your own business
10. Gold and collectibles

Real estate crowdfunding

Crowdfunding means pooling funds together from multiple investors. Many real estate crowdfunding investment platforms have low initial investment requirements because they pool the money from investors to fund the real estate project.

A 2018 study found that crowdfunding is an evolutionary and disruptive force in real estate investments. The study highlighted how crowdfunding democratizes access to high-value properties, breaking down traditional barriers imposed by high capital requirements and institutional gatekeeping. 

With crowdfunded real estate, you may have access to commercial investment properties that would otherwise be out of reach of individual investors. You may earn passive income from monthly rental income, equity buildup, or capital gains.

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Rental property

Investors who can afford rental properties can earn monthly cash flow from rental income and earn equity in the property as it appreciates. When you own real estate properties, you act as the landlord, maintaining the property, seeking and managing tenants, paying the property taxes, and handling all aspects of property management.

If there's enough room in the income earned from the property, you may be able to hire a property management company to handle the daily activities of maintaining the rental, thus creating a more passive income opportunity for yourself.

Farmland

Real estate investing is common, but most people focus on residential or commercial properties and overlook the benefit of investing in farmland.

When investing in real estate, you can buy farmland just like you'd buy a house or commercial property and rent it to farmers who need land. You collect the monthly rent for the use of the property and enjoy the benefit of the property's appreciation and capital gains.

Private equity & venture capital

Accredited investors often have access to investing in private businesses through private equity or venture capital. Do due diligence before investing in a business, especially a startup looking for venture capital.

This method of investing has the highest risk, but it also has the highest rewards when it works right. You can find opportunities to invest in private businesses through angel investor sites. You can sort through your options based on the industry you're most well-versed in and have confidence in as an investor.

REITs

REITs can be a great alternative to stock market investing. Real estate investment trusts are investments in a real estate company. REITs must conduct a majority of their business in real estate and distribute at least 90% of their profits to shareholders.

When you invest in REIT, you invest in the properties the REIT owns and manages. This makes you a real estate investor without owning the rental property yourself. You earn passive income investing in real estate by not having to do any of the work to manage the property, but you earn dividends from rent, interest, and capital gains.

Private credit

Private credit, also known as direct lending, has become an increasingly popular alternative investment. It involves lending directly to companies, often small to medium-sized businesses, bypassing traditional banks. Investors in private credit typically pool their capital through funds or other investment vehicles, which then deploy the capital as loans. 

Private credit offers the potential for attractive yields, as these loans often come with higher interest rates than publicly traded bonds. However, private credit investments are not without their risks. The illiquidity of these loans means that investors may not be able to access their capital quickly if needed.  

Hedge funds

Hedge funds employ a variety of strategies to generate returns for their investors. Unlike traditional mutual funds, hedge funds typically cater to high-net-worth individuals and institutional investors. They often pursue more complex alternative investing strategies, including short-selling, leverage, and derivatives trading. The goal of a hedge fund is often to generate absolute returns, meaning positive returns regardless of market conditions.

Hedge funds can offer the potential for strong returns but they also come with higher risks and fees. They are known for their performance volatility and some strategies can be particularly complex and opaque. According to PivotalPath, hedge funds averaged a 10.7% return in the year through November 2024, compared to 5.7% in the same period in 2023. Due to their complexity and higher risk profile, hedge funds are generally more suitable for sophisticated investors with a higher risk tolerance.

Digital assets

Digital assets, including cryptocurrencies, have emerged as a prominent alternative investment class. Beyond the crypto market, the digital asset landscape encompasses non-fungible tokens (NFTs) and other blockchain-based assets. There is also what is now called digital real estate. The appeal of digital assets lies in their potential for high returns, their decentralized nature, and their role in the evolving digital economy. 

However, they are also characterized by significant price volatility and regulatory uncertainty, making them a higher-risk investment. According to economist research, 69% of institutional investors anticipate increasing their allocations to digital assets and/or related products in the next two to three years. The same research also projects that digital asset holdings will constitute 7.2% of institutional portfolios by 2027, indicating a substantial expansion of this asset class within the investment landscape. 

Your own business

Owning your business is one of the best ways to invest in yourself. If you have a great business idea, you can invest your money in it and grow it. Of course, there's always the risk of a total failure which would mean a loss.

Like the investment advice given by most professionals, it's a good idea to diversify your investments, so you don't put all your eggs in one basket and risk a total loss. Even though you're investing in yourself, invest money in other stock market alternatives to offset any significant losses.

Gold and collectibles

Gold and collectibles represent tangible alternative investments that have historically served as stores of value and hedges against inflation. Gold prices tend to rise when inflation increases. Collectibles encompass a wide range of items, including art, antiques, rare coins, stamps, and even wine. The value of collectibles is often driven by factors such as rarity, historical significance, and aesthetic appeal. Unlike financial assets, gold and collectibles offer the tangible benefit of physical ownership.

However, these investments also come with their own set of challenges. The price of gold can be volatile and influenced by factors such as interest rates, economic growth, and geopolitical events. Collectibles can be even more illiquid than other alternative investments and their value can be subjective and difficult to appraise. Investors considering gold and collectibles should carefully research the market.

FAQs

Are there risks to alternative investments?

Every investment has risk. Whether you choose mutual funds, REITs, antique cars, art, or any other alternative investment ideas, there is a risk of loss. Therefore, it's best to diversify your portfolio to vary your risk and increase your returns.

How do I pick the best alternative investments?

To pick the best alternative investments other than stocks, decide what you're most interested in and what you know the most about. For example, if you are interested in private businesses, you might look for private equity funds to help a business get started or expand. On the other hand, if you have extensive knowledge of art, antique cars, or sports cards, you might invest in them to make the most money. Look at the risk and reward of each alternative investment option, and always make sure to do your due diligence.

How does inflation affect investments?

Inflation affects different investments in different ways. The stock market, for example, is highly affected by inflation, as are mutual funds and other investments tied to the stock market. Other investments or stock alternatives, however, such as REITs, may be positively affected by inflation and be a good hedge against it.

How much money should I be investing?

How much you should invest depends on the amount of capital you have, your risk tolerance, and your financial goals.

The bottom line

Diversifying your investments can help offset the risk of a total loss. You can invest in a variety of investments alternatives to stock and potentially see higher returns, but there's never a guarantee with any investment. Whether you choose a rental property, REITs, private equity, collectibles, or something else, there's a risk for reward and loss with any investment. Learn more by signing up and visiting our blog.