Blue Chip Blues: Alternative Investments for a Bear Market

Posted by DebtKid :: November 13, 2008 @ 10:51 am

For equity investors, the good news is that the year is almost over. The bad news is that the future is still quite uncertain. So how do you handle a bear market, especially a bear market that's more angry Grizzly bear than tame Winnie the Pooh? You get creative. You think outside the normal "buy and hold" box. There are plenty of alternatives to equities that can survive and even thrive in a bear market.

1. Build a Website Portfolio

Just like with traditional real estate, online websites are all about cash flow. If you're good on the web, consider purchasing a website or two to add to your asset base. Just like a home, websites require maintenance and love to add value to them. Most websites under $25,000 will sell anywhere from 1 to 3 years earnings. In Stock-Talk, that's an insanely low 1-3 P/E ratio. Find quality established websites at Sitepoint.

2. Real Estate

Where is "buy and hold" really a good strategy right now? It's real estate. If you have cash right now or can free some up, you can pick up rental properties at incredible discounts right now. There is even a government tax credit for buying foreclosed properties.

This isn't for the weak of heart. The future of real estate is as uncertain as the stock market, but at least your purchase is something tangible. Plus, while housing prices may have fallen through the floor, rents haven't followed suit. You have a much better chance today of owning cash flow positive rentals than any time in the last few years.

3. You

Do you know the single greatest asset you own? It's you! As Dr. Phil as that might sound, it’s true. Consider investing in your own education. Get that MBA you've always wanted. Investing in yourself and growing your knowledge will always produce a positive return. Where else do you get that kind of guarantee?

4. Peer to Peer Lending

Peer lending is a relatively new investment option in the last few years. It's an attractive option, with rates on borrower notes from 6.69-18.63%. Peer to peer lending works as a win-win for both borrowers and lenders. Borrowers get a lower rate than they would from a traditional loan or credit card, and lenders get a higher return than a CD or savings account.

Lending Club recently got SEC approval for its investment notes with stated interest rates from 6.69-18.63%. With that approval, it also paved the way for a secondary market for the notes. That means your cash isn't tied up for the duration of the 3 year loan, as you can resell it on the secondary market.