Why Thinking Beyond Ordinary Stocks Could Be the Easiest Way to Grow Your Wealth!

Jared Levy, Editor, Smart Investing Daily
Wednesday, September 08, 2010

What do John D. Rockefeller, Cornelius Vanderbilt, Henry Ford and John Jacob Astor all have in common? Well for one, they were four of the wealthiest individuals in American history. But perhaps more importantly, NOT ONE of them amassed their fortunes primarily through the stock market. From crude oil and steel to railroads and even fur and opium (Mr. Astor participated in the opium trade), these extremely successful individuals saw a need, found a way to fill it and in doing so, created immense wealth that was passed down through generations.

If you look around at just about any successful business, there is someone behind it making money. That someone had a vision, took a risk and followed their passion. These days, it doesn’t necessarily take a wild vision, a lot of risk or even a whole heck of a lot of passion to make money. There are places where you can find relatively simple, profitable investment opportunities.

Takes a Little Research

Strong, solid, potentially high-yielding yet low-risk alternative investments can be found outside the stock and bond markets. An alternative investment is anything that does not fit into the three main investment vehicles that are stocks, bonds and cash.

The reason why we don’t hear about these potentially great opportunities is because they usually aren’t as popular as the stock market (which may be a good thing) and they usually aren’t as glamorous. Therefore your traditional Wall Street broker has a tendency to ignore them. That ignorance could cost you a handsome profit.

So how do you uncover low-risk, high-yielding alternative investments? One hint comes from something my father taught me. He said that if I wanted to live with the “classes” I had to create or do something for the “masses.” When looking for alternative investments, think about the things that we all have a constant (and growing) need for.

As M.P. McQueen of The Wall Street Journal writes, “There is always a bull market somewhere. With the stock market continuing to whipsaw and bonds getting ever-pricier, investors are looking further afield for decent returns – and some are finding them.”

Alternative Investment Idea #1: Housing

Or more accurately, student housing. Even with the ebbs and flows of economic strength, young adults will generally continue to head off to college to begin their journey into the work force and adulthood. Though the economy may dictate whether their parents are sending them off to Princeton or a state college, they need a place to live.

If you travel to just about any major college campus around the U.S., you are sure to find student-focused housing, either in the form of individual properties (houses) that have been broken up into multi-unit apartments or larger buildings specially constructed to house students.

The reason why being a landlord of student housing may be inherently less risky from a default perspective than being a regular landlord is that the parents usually co-sign the lease, offering investors an extra layer of protection. I even hear they put credit cards on file for rent in some cases!

Of course, beer pong and flaming shots of Bacardi rum can damage interiors, so maybe that security deposit will have to be a bit higher than usual.

How to Invest in Student Housing

You could always drive down to a local college and scope out properties with the assistance of a realtor if you want to really be “hands on.” While this method may offer you the most upside (10-12% returns annually plus depreciation), it’s very time consuming.

An easy alternative is to invest in publicly traded REITs (real estate investment trusts) such as American Campus Communities Inc. (ACC:NYSE), up 10% YTD, and Education Realty Trust Inc, (EDR:NYSE), up 52% YTD, both of which trade like stocks and allow you to buy and sell as you see fit. They both have way outperformed the S&P over the past year.

(By the way, investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let my fellow editor Sara Nunnally and I simplify the stock market for you with our easy-to-understand investment articles.)

Alternative Investment Idea #2: Self-Storage Facilities

Self-storage facilities are probably not the first thing you think of when you’re looking for an alternative investment yielding high returns, but this is another one of those “must haves” for many Americans. In fact, according to the Self Storage Association, one in 10 American families use self storage and this number has been on the rise.

Why I tend to like self storage in particular is because most Americans like to hang on to their things such as cars, motorcycles, boats, furniture, paperwork, and all kinds of other belongings. And they NEVER have enough room to store it all!

Another positive to investing in storage facilities is their low cost to maintain, manage and staff. Many storage buildings require minimal upkeep and are designed with relatively inexpensive materials. Staffing is minimal and most access points are automated and allow the tenants to secure their own space with their own locking mechanisms. A senior VP at real estate services company Marcus and Millichap says potential annual return rates should be in the 8.5% to 9% range.

The Wall Street Journal cites low barriers to new competition as the biggest risk, as any storage newcomers might drive rents lower in some areas.

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The Best Way to Invest in Self-Storage Facilities

Of course, you could always go out and buy yourself a small storage facility and even live on premises and manage it yourself for as little as $250,000. If you have some more money you could enter into a partnership to purchase a larger facility in a more desirable locale.

For most of us, the easiest route would be to purchase a public storage REIT like Extra Space Storage Inc. (EXR:NYSE), up 40% YTD, Public Storage (PSA:NYSE), up 27% YTD, and Sovran Self Storage (SSS:NYSE), up 8.5% YTD. These three names are the largest REITs that specialize in public storage.

These are just a few of the possible alternative, low-risk, high-yielding investments you can use to grow your wealth. The truth is, you would be amazed at the things you can invest in to generate handsome profits. Just be sure you understand what it is you are investing in!

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