Is the Stock Market for Suckers?
5 Investments that are Always Better than Stocks
Stocks have long played a significant role in my wealth-building strategy.
Whether its long-term buy and holds or quick trading opportunities — particularly in the alternative energy space — I've done quite well analyzing and investing in stocks.
Of course, I'm also plugged in a lot more than your average investor.
I attend conferences and finance meetings, I visit companies and meet with CEOs, and I sit in front of a real-time trading platform all day that allows me to buy and sell stocks within seconds. This is a luxury I realize most average investors don't enjoy.
That being said, stocks aren't the only way to make money. In fact, there are a number of opportunities that allow everyday investors the same opportunities to build wealth as the richest one percent. And these are not trivial investments.
So let's take a look at the top five investments you can make today that are better than stocks.
The Future of Farming
In good times and bad, quality farmland is always a good bet for the patient investor.
Theoretically, it's a nice hedge against inflation. And while it's not liquid, it does lack the extreme volatility that can send most investors off the deep end when things get sketchy.
The big sell, however, is the rapid disappearance of available farmland in the U.S. and the rapid degradation of once-healthy soils.
The former is the result of poor city planning, irresponsible development, and the outsourcing of food production. The latter is the result of irresponsible production techniques such as monocropping and an overuse of synthetic fertilizers and pesticides.
And here's the rub...
It's only going to get worse.
As giant industrial farms continue to scale up and global demand for protein continues to grow due to expanding middle-class populations in emerging markets such as China and India, the availability of accessible farmland and healthy soils will dwindle.
Certainly this isn't good news for humanity, but it's an excellent opportunity for those who truly understand the value of quality farmland. The truth is, there are few things more valuable than healthy soil.
While oil, gold, and technology often get investors excited, you can't eat any of that stuff. I mention this because sometimes we have to be reminded that if we can't eat, we can't live. It's pretty simple, really.
Another Billion Hungry People
The best farmland to buy is farmland that's relatively close to distribution points but far enough out that it dissuades developers from coming in and turning it into strip malls and car dealerships. These are typically rural areas where populations are small and there are no big industries feeding the local economy — in other words, places where few folks could live full-time due to a lack of job opportunities or boredom.
The interesting thing about good farmland is that you don't really even have to do much to it.
Sure, you can work it and let it provide you with income and sustenance (which I do recommend), but you can also just sit on it and let its value build as another billion people populate the earth, all looking for a juicy steak, a glass of milk, and a steady supply of bagged salad mixes.
For wealth creation, steady cash flow is paramount. And owning a solid rental property can provide just that.
Not only can a rental property allow you to have access to a tangible asset, but it can also allow you to build wealth while you sleep, eat, and work.
(For the record, I prefer actual single-family homes as opposed to condos since condo fee hikes are relatively uncontrollable and can often eat into your profits.)
When looking for a profitable rental property, I prefer urban areas that boast at least three of the following features:
- Young families
- Low crime rates
- Walking distance to stores and restaurants
- Walking distance to public transportation
- Walking distance to at least one college or university
As far as location, I prefer urban areas with a long history of occupancy and commerce. The Northeastern corridor is great for this, especially if you can find a bargain. Here, you will find your best bargains in Baltimore — essentially the last affordable city along the Northeast corridor. Its short distance by train to Washington, D.C. and New York City make it very attractive.
Still, as a whole, Baltimore still has one hell of a crime problem, and property taxes are criminally oppressive. That being said, the city is miles ahead of where it was just 10 years ago as far as crime, livability, and convenience are concerned.
Real estate prices have held up pretty well, and new, younger, hip areas in East Baltimore continue to attract high rents. Mid-town Baltimore is developing nicely with new condo and retail projects, and north Baltimore, while probably being one of the priciest sections of the city, continues to command top dollar for single-family homes.
Other cities to consider include Philadelphia, Austin, Dallas, San Antonio, Chicago, Richmond, Salt Lake City, and Denver.
Protect Your Investment
One of the things that can sometimes keep real estate investors up at night is the thought of their rental properties being destroyed by tenants. Here are five tips to ensure this doesn't happen to you:
- Include bi-weekly maid service with your lease: This may cost you a few extra bucks along the way, but it will ensure that your property doesn't turn into a den of filth. As well, if you develop a good relationship with your house cleaner, he or she can provide you with intel on your tenants. Are they keeping things clean? Does anything look sketchy? Are there any animals in the residence that aren't authorized to be there?
- Make sure your property's landscaping is attractive and maintained: Either do this yourself or hire someone to do it. Don't let your rental property look like one. It'll piss off your neighbors and subliminally tell your tenants that you don't care how the property looks.
- Check in on your tenants: I don't mean show up unannounced. But every couple of months, give them a call or send them an email. Ask if everything is OK or if they are having any problems with anything. If an appliance is broken or if there's any kind of water damage, it's best you know about it quickly. You want your tenants to be happy so they, in turn, will feel obligated to treat your property with respect. I also recommend sending gift cards for local restaurants during Christmas. It'll cost you $25, but the return of having a respectful tenant is well worth it.
- Do a background and credit check: The last people you want renting from you are the types who don't pay their bills or have a history of unemployment.
- Go with your gut: If you have an uneasy feeling about a potential renter, there's probably a valid reason for that. This is your investment. You must feel comfortable with those who will take up residence in your home.
Tips for Higher Rents
While you don't want to risk long-term vacancies by demanding insanely high rents, you still want to get the most bang for your buck. The best way to do this is to offer extra benefits that other landlords typically don't. These include, but are not limited to:
- Free cable
- Free Wi-Fi
- Free access to parking
- Free use of alarm system
- Free house cleaning
Also consider furniture. According to real estate expert Paul Benson, “Cheap IKEA furniture for a young family moving in can get you an extra $500 to $1,000 a month because it's turnkey and less out of pocket.”
Of course, none of these things are actually free. However, when you figure in the monthly costs of these “extras,” you're typically looking at around $150 to $200 extra per month. Tie that to the rent, and you get the joy of having little trouble renting your property while your tenant enjoys all the extra perks that hardly anyone else offers. Adjusting your rent a bit higher also has the benefit of weeding out some of the riff raff you don't want in your home anyway.
Invest in Human Capital
If you're going to own a rental property, I strongly urge you to know how to fix things. Not only will this save you a fortune on maintenance costs, but it will make you much more self-reliant.
This is an attribute that will add to the value of your human capital. So the investment here is in a library of do-it-yourself books and videos.
Basic home maintenance books are great, but also get specific with books or videos on wiring, plumbing, and basic carpentry. Just don't get too cocky with your limited skills.
For me, the basic rule of thumb has always been fix it yourself unless the result of a faulty repair will cause bodily harm. In other words, if you need to re-wire your house and you're not a skilled electrician — just hire one! It'll be well worth the expense in the long run.
For many, the idea of installing solar panels is a bit scary. After all, installing a solar power system on your home isn't cheap.
Depending upon the size of your home, the solar resource in your area, and how much electricity you want your system to provide, the price of that system can vary. And of course, the cost per kWh in your neck of the woods is also something to consider.
For instance, if you live in Arkansas or Louisiana, the return on investment with a solar power system may not be as impressive as the return with a system in California or Hawaii, where electricity costs are some of the highest in the United States.
But for the most part, if you plan to stay in your home for more than 10 years, a solar power system can serve as a great way to make money simply by saving money. We're talking about a savings of anywhere from $450 to $3,000 per year based on the 20-year life of a modern solar power system. Even in the worst-case scenarios, payback on the initial investment is unlikely to exceed 17 years. In the best-case scenario, you're looking a payback of five years.
Again, a lot of this really depends on where you live, so in some cases, the ROI might be too long for you to consider. But in most cases, investing in a solar power system for your home will result in you coming out much better than investing that money in a “safe” conservative investment, like a CD or Treasury bond. Hell, in many cases, you'll beat the S&P.
Also consider that a solar power system on your home increases the value of your home. An average installation on a $500,000 property could add at least another $20,000 to the retail value of the home.
As an added bonus, solar finance and installation company SolarCity (NASDAQ: SCTY) now offers direct loan programs to customers. This is a huge benefit for those who want to go solar but don't want the hassle or high interest rates that go along with getting a loan from a third-party bank.
As well, SolarCity still offers a 30-year warranty, production guarantees, and monitoring services. This is basically the evolution of solar installation that we're seeing right now.
One final thing to consider is energy security. With your own system in place, when the grid goes down, you may have some form of backup — depending upon how your system is set up. Interestingly, SolarCity will soon offer a back-up battery option for its customers. This way, you can actually generate and store power during the day, then use it at night when the sun isn't shining.
Of course, before you go solar, I strongly suggest getting an energy audit. Plenty of companies provide this type of service, and it'll allow you to find places in your home where heat and air conditioning may be escaping.
Drafty windows and doors, lack of proper insulation, and misaligned ventilation systems could already be causing you to waste as much as 20% a year on energy costs. If you're going to invest in a solar power system, you don't want all those solar-powered electrons going to waste. It'll certainly affect your ROI.
Invest in Yourself
It always blows my mind when I meet with these super-rich investors and CEOs who spend an unbelievable amount of time smoking, shoveling pounds of crap food down their gullets, and doing more blow than Tony Montana in Scarface.
The bottom line is that there is no better investment than you.
It makes no sense to invest $20,000 into some random stock but not spend a few hundred bucks for a gym membership or yoga classes. It makes no sense to double up your retirement contributions, then complain about how healthy, organic food is too expensive.
I know too many wealthy individuals who can't walk up a flight of stairs without getting winded. I know too many millionaires who spend more on top-shelf booze than they do on food.
If you work all your life to create and protect your wealth, why wouldn't you do the same to protect your health? There are thousands of investment vehicles in which you can take part, but you only have one body and one mind. And in the absence of these, you simply can't build your fortune or enjoy it once you have it.
So here are 17 tips for investing in yourself:
- Exercise regularly
- Read for enjoyment
- Eat organic food
- Eat plenty of fresh, raw vegetables
- Drink plenty of water
- Walk more
- Get enough sleep
- Turn off the television
- Socialize outside of work
- Have at least one hobby that demands physical or mental exercise
- If you smoke, quit. No excuses.
- Eat fermented foods like yogurt and kimchi
- Get a massage
- Wash your hands
- Do at least one crossword puzzle per week
Although these investments may seem a little unconventional, they're definitely much safer than stocks. The guarantee of returns is much greater, too.
Sure, you're not going to be able to quickly trade some farmland for a 30% gain in one week. And no, you can't add the gains from “investing in yourself” at the bottom of a balance sheet. But rest assured, if and when the proverbial poop hits the fan, these are five investments that will not let you down.
These days, I'll happily take that over risking everything in a stock market that's really nothing more than a slot machine controlled by algorithms, politicians, and the Fed.