What Stock Market Alternatives are Out There?

October 12, 2021

Ready to branch out of stock market volatility? Here are some of the best stock market alternatives for investors to keep in mind.

Tired of riding the roller coaster that is the stock market? We can’t really blame you.

On one hand, the last decade has been great for stocks. From 2011 to 2020, the average annual return was 13.9% for the S&P 500 Index. Here’s the catch: only one year (2014) was close to the average annualized return, and there’s no way of knowing which years will be high or low. Then there was 2020, which saw one of the fastest stock declines on record followed by new highs by the end of the year.

In short? It’s a stressful time to be in the stock market. And for savvy investors, it’s time to branch out. Here’s a look at some of the best stock market alternatives.

Why Invest Outside of the Stock Market?

First, though, we should get clear on why you need stock market alternatives. Here’s a hint: it’s not just for the sake of your stress level.

While stocks remain one of the best assets for growth, they’re also notoriously volatile. Stock prices can change minute-to-minute based on the market, company performance, and what investors are willing to pay. And unless you have a crystal ball, there’s no way of knowing which way your fortunes will turn. That’s part of the risk-reward calculus of stock market investing.

Here’s the problem: as investors saw in 2020, if your whole investment portfolio is in the stock market and the stock market nosedives, your money dives with it. And if you try to time the market, sell to cut your losses, and then find that prices climb again, you won’t have time to buy back in before you’re priced out.

This is not to say you should never invest in stocks again—quite the opposite. Stocks remain a building block of every investor’s portfolio. It is to say that diversification is the golden mantra of every smart investor—if you balance your portfolio, you balance your risks.

What are Alternative Investments?

What are your options outside of the stock market? In general, you have two:

  1. Other conventional investments (such as bonds and cash)
  2. Alternative investments

Alternative investments are any investment that doesn’t fall into one of the three conventional investment categories (stocks, bonds, and cash). This is a hugely diverse investment category that can include anything from real estate to hedge funds to fine art to venture capital to derivatives.

In general, alternative investments have low correlation to the stock market and are less liquid than their conventional counterparts. This means that they can hold value or appreciate even if the stock market does poorly. However, they also come with different risks than conventional assets—they’re illiquid because the market is much more niche, assets don’t regularly publish valuation information, and some assets can be tricky to value in the first place.

Do You Need Alternative Investments to Branch Out of the Stock Market?

To be clear, you do not need alternative investments to branch out of the stock market—but you should use them anyway.

Within conventional assets, your two other options are bonds and cash. Both are an important part of your investment profile, as they’re both considered safer than stocks and can provide a predictable store of value. However, these investments are useful insofar as they work like savings accounts, and because they’re much safer than stocks, they produce much lower returns.

Alternative investments introduce different risks than stocks, but they also allow the chance for portfolio growth, and either way, they’re a useful hedge against stock market volatility. A strong portfolio contains a balance of all of these assets.

Outside of conventional assets, there are several stock market alternatives available—and thanks to modern innovations like crowdfunding, they’re now more accessible to average investors than ever.

Real Estate

One of the best-known alternative investments is real estate. This is popular among investors because it’s a tangible asset and because it can be used to generate income—often much better income than bonds or cash alternatives.

There are lots of ways to make money in real estate, but they all boil down to two basic mechanisms: buying and flipping properties for profit, or buying properties and earning rental income. For example, if you own a vacation home and rent it out to tourists on Airbnb, you have an investment property.

If you don’t have funds to purchase property outright, another option is to use an investment platform like PeerStreet or Fundrise. These allow investors to buy shares in crowdfunded real estate and earn income on the rent without the responsibilities of being a landlord.


Here at Masterworks, we’re huge fans of art as an investment asset. It’s long been popular with qualified investors as a store of value that can appreciate over time and as a hedge against inflation. Oh, and the market performs quite well at the high rungs— blue-chip art has outperformed the S&P 500 by 180% from 2000 to 2018.

For the average investor, there are lots of ways to get started investing in art (yes, even if you can’t afford to drop a few million on a painting). For those without a lot to get started, the best option is to buy shares in blue-chip art, kind of like buying stocks in a company. That’s what we specialize in, with shares available for as little as $20.

If you have a bit more money to drop on art (think several thousand per piece) you can try your hand at buying and flipping art. Keep in mind that art needs a few years to appreciate and you need to get familiar with local art market specialists (a la gallerists and art dealers).

Peer-to-Peer Lending

The newest kid on the stock market alternative block is peer-to-peer lending, or P2P.

Imagine buying your house or founding a business. Few people have that much in liquid assets lying around, so you head to the bank and request a loan. The bank gives you the loan and earns money on the original balance and interest on the loan over its lifetime.

In P2P lending, you’re the bank, and you give a loan to a borrower. You earn money on the investment just like a bank would. This is a great way for investors to get involved in startups from the ground up, and for average investors, this often means pooling your assets into one large loan and collecting interest based on your share.

Keep in mind that you’re often dealing with borrowers who can’t go to traditional lenders for any number of reasons, but like a bank, you can set the criteria for qualified borrowers.

Ready to Branch into Stock Market Alternatives?

Ready to strengthen your portfolio with stock market alternatives while investing in something you love? If so, we’d love to invite you to the exciting world of blue-chip art investing.

We’re on a mission to make blue-chip art accessible for investors like you. Think of us as your expert partner in the art world. We do research with Citi Bank and Bank of America to identify high-growth artist markets with the best potential risk-adjusted returns, then we handle the auction process for you (buying and selling). After we purchase a piece and file an offering circular with the SEC, investors can purchase shares. We sell the art between three to five years on average (no more than 10) at which point you collect your gains based on the work’s appreciation and your percentage share. Let’s strengthen your portfolio with the most successful form of passion investing. Fill out your membership application today to learn more.

Masterworks is a fintech company democratizing the art market. Our investors are able to fractionally invest in $1mn+ works of art by some of the world's most famous and sought-after artists.