An index fund is a portfolio consisting of components that match or track the financial market index. Its major benefits include broad market exposure, low operating costs, and strong returns in the long-run. Index funds are ideal for conservative individuals who prefer a passive type of investing.
However, the richest people don’t invest in index funds that have low entry points and match only the movement of the market. Instead, they put their money in financial instruments that are a bit riskier in exchange for the opportunity to obtain bigger rewards.
So, if you find the gains from index funds insufficient to get you nearer toward your financial goals, you’d be better off investing your money in the following methods:
1. Buy and sell real estate
Real estate is probably the most popular hard asset everyone aspires to invest in. When done properly, investing in real estate can be a profitable source of income that outperforms index fund investments.
The price of real estate is less volatile compared to stocks and bonds. While your investment in stocks can be completely halved in just a day, the value of a real estate won’t rise or fall as much. You’ll gain more confidence in investing in it because it has greater stability compared to soft assets.
Being a tangible asset, you’re given numerous options to profit from real estate. You can either rent or lease it, sell it, or develop it yourself by building an income-generating asset like an apartment or a rental house.
There are costs involved in maintaining a property, but the ROI can be enormous, especially if you own one that’s in a prime area. The value of a real estate will always appreciate as the demand for property rarely goes down. This means that the longer you hold the asset, the higher its price gets. You can check out how to calculate your rental yield HERE.
2. Start a blog
Posting your merchandise on e-commerce sites such as Amazon or Etsy and marketing them on your blog is one of the methods to monetize your website. This reduces the cost of hiring a middleman to do the promotions, giving you a higher cut on your investment.
Selling your products isn’t the only method to earn money through blogging, though. Through affiliate marketing, you can sell the products of other businesses on your site and gain commission from every lead or sale made with your help. A blog can a huge digital asset.
To start, choose from a variety of topics that you’re interested in and find advertisers looking for affiliates. Many successful bloggers started by writing about their hobbies first before monetizing the site traffic.
Using a subscription-based model to get access to exclusive information, training, and other services can also be used on your blog. Although the Internet is flooded with free content, most of them have poor content quality. If you’re an expert in a field and have much more to offer to customers who are willing to pay, you can earn more from memberships and subscriptions.
A blog builds a relationship with customers through trust, so expect to have a rough start. Top bloggers who have gotten the confidence of their readers and have mastered the strategies on selling and affiliate marketing can earn thousands per month, depending on the chosen niche.
A blog can be a good investment if you know how to monetize site traffic. Aim first to gain more followers by writing authoritative content that command expertise and exhibit an in-depth knowledge of the field.
As more people find the information on your blog useful, you’ll gain more avid readers which you can then convert to loyal customers. Through advertisement and selling strategies, you can monetize the traffic made by your followers into serious cash that can outgain index fund investments.
3. Sell online using the Amazon FBA business model
Amazon’s Fulfillment by Amazon (FBA) business model enables you, as the seller, to choose the product you like to sell. You then find a supplier for that product and procure as many as you need, and the merchandise will be housed in one of Amazon’s Fulfillment Centers. With the FBA model, Amazon will also take care of the packaging and shipping of your products.
The concept of the Amazon FBA model is somewhat similar to dropshipping. But what makes the former better over the latter?
First, with the Amazon FBA model, you don’t have to worry about the packaging and shipping of the merchandise. Sales won’t slump when you can’t get in touch with your shipper or when the delivery area of the customer is out of reach of the shipping company. In addition to this, your products will be eligible to receive shipping promotions like Free Super Saver Shipping care of Amazon, which can greatly improve sales.
Second, you get access to Amazon’s global customer base. Many local businesses have a hard time expanding into a global audience because of hurdles in branding and international market penetration. With the Amazon FBA model, your business will enjoy the attention of millions of users who trust the Amazon e-commerce platform every day.
Third, you’ll be able to provide return and replacement guarantees to customers, improving overall service. Consumers look for reliable sellers who provide shipping returns for mishandled products. With the Amazon FBA business model, you’ll be able to offer this kind of service to consumers, resulting in greater trust in your products.
Last, you’ll be able to piggyback on the established brand of Amazon, so you won’t have to worry about building a name for yourself from scratch. It makes selling easier because consumers will see the Amazon brand name slapped on your products. You can also easily scale your business since you can just post more items on the platform and let the Amazon name take care of the sales.
Investing in an e-commerce business is made much easier with the Amazon FBA model. The ROI can be hard to come by at first, especially when you’re just starting. But as you get more loyal customers to your side, the business will be more profitable than putting your money in index fund investments.
4. Trade cryptocurrencies
You’ve probably heard of Bitcoin and how it made people richer overnight. Its volatility and highly speculative nature brought digital currencies into the spotlight, enticing more investors and traders to join the fray.
The gains on this asset type can be astronomical. From being valued at around $2,000 early in 2017, Bitcoin’s price rose up to more than $19,000 near the end of the year.
But on the flip side, the risks are higher too. After its monster rally, the priced dipped down to $14,000, losing a third of its value in just 24 hours.
Although cryptocurrencies have a solid technological foundation, their price action is founded on speculations that they’ll be the next big thing that will replace traditional currency systems; traders bet on its volatility, while investors are looking at its future value.
Investing in cryptocurrencies is a high-risk, high-return option that you should take only if you fully understand what you’re dealing with. If you’re confident to enter this kind of market, you’re in for a treat more rewarding than what index funds can ever provide.
5. Invest in individual stocks
Instead of investing in an index fund, why not invest in individual stocks? By concentrating your portfolio on individual stocks with a better growth potential than slow-moving index stocks, you have the opportunity to maximize your portfolio’s growth.
LEARN MORE: HOW TO BECOME A SUCCESSFUL ONLINE TRADER
Doing thorough research will reveal growth stocks that have the potential to perform better than the market average. These types of stock don’t provide dividends, but being undervalued, they can easily outperform heavy index stocks as the company expands its market.
If you understand basic accounting concepts, you can also look for value stocks. Like growth stocks, value stocks are also undervalued but have a more established market presence. They usually trade with low P/E and P/B ratios while providing high dividend yields.
There is no surefire method to know whether a value or growth stock will rise from being undervalued and become more profitable. There are risks involved in betting in either of these stock types but so is investing in index funds. And with both options posing risks, it would be better to go with an investment that will provide higher returns in the future.
6. Collect artworks
Long-term investors often diversify their portfolio by mixing soft assets such as stocks and bonds, and hard assets which usually comprise real estate and pieces of jewellery. Recently, the demand for artwork as an investment asset has been gaining popularity, since its value appreciates even if it’s just hanged on a wall.
According to a study conducted by Art Market Research, the value of art pieces has seen a 1,000% increase in the past 40 years; an annual increase of at least 25% in their value has also been seen in art pieces these past few years. The rewarding value appreciation has gotten investors’ attention, further adding to the demand and the price increase.
For first time investors, there are many types of art to learn, as they span across different types of media and they all vary in style and classification. Aside from this, one of the most important skills to acquire is the ability to differentiate an original piece from reproductions and fakes. Research about the artist, the artwork, and the dealer to ensure you’re buying an authentic piece of work that’s likely to fetch a higher price in the future.
Many people are dissuaded from investing in art because they don’t understand what to look for. But with research and experience, you can learn how to spot artworks of value and profit from this potentially lucrative investment option.
Conclusion – Alternatives To Index Fund Investing
There are more profitable ways to earn more money than investing in an index fund. An index fund sure has its advantages, but there are other options that offer higher returns and better flexibility in terms of portfolio diversification.
As in any kind of investment, there are always risks involved, so make sure you understand them before pitching in any amount of money. With research, discipline, and patience, you can easily outperform the gains provided by an index fund with the investment options discussed here.