Welcome to the ‘Let’s Talk Money’ blogpost series where I break down key savings and investment topics that hopefully will inspire and enlighten you in your Personal Finance journey.
Today, we’ll explore the 5 alternatives to stock investing. Perhaps the thought of reading company reports and monitoring stock charts are not for you, then here are the other options:
1. Real Estate
This alternative needs little introduction. Real estate, as its name alludes to, is REAL estate ie. tangible assets like your home, a piece of land. When you purchase a house, you get returns in two ways:
- The value of your house rises
Eg. You buy a house in a part of a city that is developing for RM300k. Years later, this city is now developed with better amenities, and more people would naturally want to move there, boosting the demand of houses within the area. So YOU as a house owner now has more bargaining power, enabling you to sell your house at RM500k! That’s a return of 67%.
- Collecting rental income
Eg. You rent it out to someone else and you charge them rent for it.
The key difference between real estate and stock investing is its liquidity. While it feels more secure to own real estate and unlike stock, it faces less fluctuations in the market; its low liquidity is definitely its largest drawback.
Liquidity essentially means how fast an asset can be converted into cash (Be like water my friends, liquiddd). Yes, you may have a house currently worth RM500k, but if you suddenly need it for an emergency, you are unlikely to be able to sell the house tomorrow to get that cash.
2. Peer-to-Peer (P2P) Lending
Peer-to-Peer Lending or usually known as P2P, is a form of loan crowdfunding, where investors directly lend money to businesses, through P2P platforms. These platforms will facilitate the loan crowdfunding process, offering factsheets indicating outlining the funds to be raised, the expected interest rate return and key information about the companies financials and management. Some notable P2P lending platforms in Malaysia are Funding Societies and Fundaztic.
Investors can earn a return from P2P in the form of interest income due to the high interest rate charged for the loan. Thus, investors can expected to receive their principal and interest, throughout the loan repayment period.
However, those on P2P platforms are typically smaller businesses that may face a tougher time during an economic downturn. This increases the likelihood of loan defaults and late repayments.
Gold is usually favoured as an alternative investment option when there is uncertainty in the stock market. This is rooted in the long held belief that Gold is a good store of value and hedge against inflation. Hence why Gold is seen as a ‘Counter-Cyclical’ Asset, which just means Gold prices tend to rise when the economy is not doing so well, and vice versa.
There are a few ways you can invest in gold – through purchase of:
- Physical gold (eg. jewelry, gold coins, gold bars) – these can be passed down through generations, however, bear in mind for gold jewelry, the meltdown value is likely to be lower than the price you bought it for cause companies need to make margins yo
- Gold mining stocks – Okay technically this is part of the stock market but these companies are also viewed as proxies to Gold cause the more people buy gold, the more profit they make, the more dividends they can pay out, the more people buy their stock = gains for the investor
- Gold Exchange Traded Funds (ETFs) – Gold ETFs are a basket of Gold-related contracts, of which its detailed explanation alone warrants another post so just think of ETFs like the Gold’s shadow. It essentially tracks the performance of Gold, without actually purchasing physical gold (ie. another proxy).
However, it’s important to note that because Gold is a commodity, it’s highly dependent on supply and demand, making it vulnerable to price swings.
If you have been following the news in the recent months, you’d notice that Cryptocurrency has took the world by storm again with the likes of Bitcoin hitting record highs after Tesla bought $1.5billion’s worth of Bitcoin, parody cryptocurrencies such as Dogecoin and spawns of many others such as Ethereum, Libra and Litecoin.
Cryptocurrency is a digital currency independent of central authority (eg. A country’s central bank that regulates and prints the money we use now), which was designed to be a medium of exchange to purchase goods and services. The backbone of cryptocurrency is the blockchain technology; one of its many advantages is its transparency. Eg. Imagine if all the transactions are made public by a bank, that’s how Blockchain is like. This reduces risk of tampering and allows the masses to verify and validate the transactions.
Using Bitcoin as an example, riding on its potential in our futuristic world, coupled with higher institutional adoption, more and more investors are starting to invest in Bitcoin/Cryptocurrencies at large as part of their investment portfolio. However, Bitcoin is extremely volatile; its YTD gains is up 140%, mainly due to varying perceptions of investors on its intrinsic value, hence can be easily swayed by news from large institutions/figures.
These are items that has a huge fanbase of people who are willing to pay exorbitant prices for it (eg. Sneakers, Pokemon cards, comic books etc). The latest trend of collectibles are Pokemon cards; largely influenced by popular youtubers such as Logan Paul who paid $200,000 for Pokemon cards and live unboxing videos.
Much of the value of collectibles depends on the condition of it. The criteria depends on the type of collectible but since I’ve fallen into the Youtube rabbit hole of Pokemon card investing, I’ll share some examples that I found fascinating. The value of Pokemon cards, depends on:
- Its edition – the 1st edition being the most expensive.
- Its condition- These cards can be sent to independent valuers who will grade the cards (PSA10 being the best) based on things like the centering of the print, no scratches, no bents etc.
- Its rarity – this mainly refers to the holographic cards because out of the 102 cards from the original release, just 16 cards were holographic…and even more so if you have the holy trios – the Blastoise, Venusaur and Charizard!
I’m not even a huge Pokemon fan but it does bring a sense of nostalgia and it’s pretty interesting to know!
Disclaimer: I’m not a professional financial advisor and this is not financial advice. I’m just sharing based on what I learned in my own journey and I hope it inspires you to learn more too.
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See you in the next blogpost! xx
Check out other articles within the ‘Lets Talk Money’ blog series.