5 Top Ways To Become Rich Without Investing in Stocks
Investing in the stock market has historically been a way for long-term investors to build wealth. According to the most recent S&P data, the average inflation-adjusted return on the stock market is 10.28% a year.
Despite this, many independent investors are reluctant to purchase stocks. There could be many reasons for this, such as market volatility, fear of risk, or the desire for quicker returns. In some cases, it even comes down to having limited knowledge of the market and not knowing when or which stock to buy.
Regardless of the reason, there are several other ways to build wealth for those who prefer to avoid the stock market. Keeping in mind that each of these methods still comes with its own level of risk, as well as its share of advantages and drawbacks, here are some of the top methods to consider.
Small Businesses
If you’re trying to become rich without the stock market, consider investing in an existing business.
“Investing in small businesses can be a rewarding way to build wealth without venturing into the stock market. According to the Small Business Administration (SBA), small businesses account for 44% of U.S. economic activity. By investing in them, either directly or through a small business investment company (SBIC), you’re potentially tapping into a vital economic engine,” said Jeff Rose, CFP and founder of GoodFinancialCents.com.
But remember, small businesses aren’t a guarantee.
“The U.S. Bureau of Labor Statistics reports that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years,” said Rose. “Therefore, understanding the risk and having a clear insight into the business’s operations, financial stability, and market demand is crucial.”
Small businesses also don’t always come with the fastest return on investment.
“It’s also essential to understand your exit strategy and the liquidity of your investment, considering that small business investments often tend to be longer-term and may not provide quick returns,” added Rose.
Residential Real Estate or Rental Properties
Residential real estate, such as single-family homes, multi-family homes, condominiums, or townhouses, could also be a lucrative investment.
“The only thing I can think of as an alternative to stocks, and frankly it’s a better alternative, is residential real estate investment,” said Shane Rodgers, chairman and CEO of PDX Advisors. Investors “need to do their homework and thoroughly understand the market and its underlying dynamics at both a micro and macro level. It’s also important to buy or develop at the right times during economic and interest rate cycles and in the right locations.”
Sebastian Jania, the owner of Ontario Property Buyers, added, “When one invests in real estate, they’re able to build wealth through a couple different ways. Some of the ways are through principal pay down, cash flow, and market appreciation.”
Your Own Business
For those who want to work for themselves while building wealth, starting a business could be the way to go.
“Starting a successful business is another proven wealth-building strategy. Though it requires significant upfront work and carries financial risk, business ownership provides unlimited upside if done right,” said Matthew Stratman, president of United Tax AI.
Make sure you’re prepared before you get started to increase your chances of success.
“Thoroughly research your business idea, create a detailed business plan, and be strategic with expenses and growth,” said Stratman. “Starting a business is a challenging journey that often requires several years of dedication before you can fully realize its potential. This is why having passion is crucial; it helps you maintain the drive and momentum needed to persevere until you achieve success. With the right amount of determination, grit, and smart decisions, entrepreneurship can help you build substantial wealth over the long term.”
Retirement Accounts
If you have an independent retirement account (IRA) and maximize your contributions, it’s possible to build substantial wealth. The same goes for having an employer-sponsored retirement plan like a 401(k).
“Maximize your employer benefit plans,” said Faron Daugs, certified financial planner, wealth advisor, founder and CEO at Harrison Wallace Financial Group. “Utilize all the offerings that are appropriate for your situation and be sure to maximize any employer-matching or contributions to programs such as retirement plans or Health Savings Accounts.”
Short-term Loans
Another way to become rich without investing in the stock market is to invest in short-term options like peer-to-peer (P2P) loans.
“Today’s financial market offers a wide variety of investment options that can be tailored perfectly to individual needs. However, as the economic markets worldwide experience volatility, downturns and overall uncertainty, investors look for safer investment options,” said Sigita Kotlere, CEO and board member of investment platform Nectaro.
“Short-term investments such as investments in loans (P2P lending platforms) are now seen as a safer investment opportunity than it was 10 years ago,” continued Kotlere. “A stable investment platform for investing in loans potentially minimizes risk, offers flexibility, and withdraws faster.”
When choosing a platform, make sure it’s licensed and regulated to further reduce risk. Along with this, choose a platform that doesn’t include a “buyback” requirement.
