Stocks haven't earned their keep for a decade, and bonds are paying less than the rate of inflation.
While investors may be better served by looking elsewhere, the $64,000 question is "where?" The best investments as alternatives to securities are those with an intrinsic value, which means they will become scarce and remain in demand over time while being functional so they could potentially serve a purpose other than as an investment.
Good examples are, surprisingly, in real estate, specifically farmland and rental properties, as they provide income and should appreciate in value as the market has shifted in their favor.
And certain timeless collectibles can serve that purpose as well.
To begin the process, the best advice when considering buying something outside your area of expertise is to get a professional appraisal. If it's a collectible item, it's also worth taking the next step and asking an expert trader: "What would you pay for this in cash right now?"
A few other suggestions are: Don't form a personal attachment to an investment because profit should be your only motive; speculative bubbles are common and prices don't rise forever; and if something is being hawked on TV as a "collectible," don't buy it because if there is real demand, the seller will likely make more, dimming the prospects for future price appreciation.
For most collectible assets such as cars, musical instruments and watches, hobby clubs abound. Joining one will make allies of others who share your interests and know the local market. They can also refer you to reliable sellers and, eventually, eager buyers.
Here are five alternatives to stock and bond investments worth considering:
Hands down the single best investment you can make now is in multi-family housing. The data backing up the booming demand for rental housing are overwhelming.
The single-family home market has collapsed and is going to be underwater for years to come. But where are all those people who have been foreclosed on or who can't qualify for the now tough-to-get home mortgage loans going to live? They're becoming renters.
According to a recent study by Harvard University's Joint Center for Housing Studies, the number of renter households increased by an average of about 692,000 per year, from 2006 to 2010, while the number of owner households fell by about 201,000 annually.
That trend is likely to pick up steam, because the nation's apartment vacancy rate dropped to 5.9 percent in the second quarter, the lowest since 2006, according to the real estate research firm Reis Inc., while the percentage of people who own a home dropped to 66 percent in the second quarter — the lowest since the first quarter of 1998 and down from a peak of 69 percent in late 2004, according to the U.S. Census Bureau.
Further evidence is that new multi-family housing construction is slow by historical standards because it's so difficult to get financing, according to the National Association of Home Builders.
This is a great opportunity for someone willing to put up with the challenges of being a live-in landlord because lenders give a big break on the down payment to owner-occupiers. And mortgage interest rates are at historical lows.
Given the outlook for inflation and increasing demand, there is great leverage to raise rents, so it's conceivable that a multi-family owner-occupier could cover the building mortgage payments with rent income and live for free within a few years, while getting a tax break on depreciation.
But being a landlord is demanding and not for a shrinking violet.
Multi-purpose tracts of rural land are red hot, including farmland and forests.
Beyond their value as simply irreplaceable properties, they pay dividends in their own way, whether that's as leased properties to farmers or through the sale of logging, mineral and water rights.
Follow the smart money.
John Malone, one of the nation's wealthiest individuals, with a net worth of $4.5 billion made as a multimedia mogul, this year bought nearly 1 million acres of timberland in Maine, adding to an already vast portfolio and making him the nation's largest individual landowner.
He passed fellow media mogul Ted Turner to claim that title.
The Federal Reserve recently reported that the value of Midwest farmland in a five-state area rose a record 17 percent in the second quarter of this year, the largest gain since the 1970s.
"The combination of higher revenues for crop and livestock production has been an impetus for the significant increases in agricultural-land values seen this year," the Fed reported. "Demand for farmland remained strong from both farmers and investors."
A great resource to learn more about raw land is The Land Report, a self-described "magazine of the American landowner." As for wood lots, you can get a registered forester to provide an analysis to determine what the potential lumber rights are worth.
Don't be overwhelmed, you can start small and think big.
The investors who own what many surely considered worthless land in Appalachia or North Dakota a few years ago have become latter-day Beverly Hillbillies thanks to the boom in oil-shale drilling and the sale of mineral rights to exploration companies.
With a keen eye, a little elbow grease and lots of weekends spent traveling to classic-car shows and parts swap meets and following up on ads, one should be able to pick up a cool ride that will also appreciate in value.
The Bible for this is Hemmings Motor News. Its print and online editions list over 12,000 cars and trucks for sale in various stages of restoration, as well as buying tips and most of all, what's hot and what's not and their market values.
Baby boomers are currently driving up the price of 1960s- to 1970s-era high-powered "muscle cars," those they lusted after in high school but couldn't afford.
Examples of such vehicles listed in Hemmings: 1970 Plymouth Road Runner, $18,995; 1979 Chevrolet Camaro, $37,500.
But there are also less expensive cars, such as a 1967 Porsche 912 ($8,950) or a 1959 Ford Fairlane ($5,950). They could well appreciate and be tons of fun to drive in the interim.
Even though no one under 30 wears a wristwatch (thanks to phones), there is a vibrant market for limited-edition watches.
Certain brands are considered status symbols for the wearer and also continue to appreciate in value. In some cases, they are clearly works of art.
The most well-known brand is Rolex, which is regularly on the list of the 100 most valuable global brands.
The Swiss company advertises its products as "timeless luxury watches." Rolex produces models suitable for extreme sports including deep-sea diving, mountain climbing and aviation, and their use in such endeavors only adds to their patina.
For example, the Rolex Submariner, a favorite of divers, is one of the most collected models, and one owned by Steve McQueen sold for $234,000 at auction in 2009.
The collectibles tend to be dominated by Swiss-made watches, which include Corum, Universal Geneve, IWC and Patek Phillipe, but there is wide range of manufacturers and prices to help jumpstart any collection.
The book "Vintage Wristwatches," an excellent guide, estimates that collectible Rolex watches can sell for between $650 and $75,000.
A pre-owned Patek Phillipe, a brand known for its sophisticated mechanics, easily sells for over $20,000, but one was offered on eBay last Friday for $1,200. In 2010, a Patek Phillippe was sold at auction for a world record $5.5 million.
There are National Association of Watch and Clock Collectors club shows held regularly around the country where potential investors can learn about the prices and potential pitfalls of watch buying.
Proving that watch collecting has wide appeal, actor Charlie Sheen has a $5.6 million collection.
Musical-instrument collecting is a huge field, and can include items ranging from ancient times to the late-20th century. Learning about them is best begun by visiting local museums, as instruments can be considered as much works of art as paintings are.
Perhaps one of the most active collectors' markets for instruments is for guitars, once again thanks to the interests of now-affluent baby boomers, who want to play and have others admire the same instrument as those of their guitar heroes of the 1960s and 1970s.
That's why the Fender Telecaster is one of the more valuable makes, even though the company made tens of thousands of them.
Collecting guitars can be infinitely complex as there are so many styles and types, ranging from Medieval lutes on up to the digital guitars of today. One guitar-collecting Web site says they weren't really bought as collectibles until about 1960, but it rapidly became increasingly popular and pricey.
Prices skyrocketed in the past 20 years, but recently flattened, perhaps due to the recession.
Among the most valuable are those played by recognized virtuosos.
For example, a collection of 70 of Eric Clapton's prized instruments, bearing his autograph, were auctioned for a favorite charity in March and raised $2.1 million.
He did the same thing in 2004, and one guitar, a 1957 vintage Fender Stratocaster nicknamed "Blackie," sold for just under $1 million.
One can only guess what Willie Nelson's battered Martin N-20 guitar, nicknamed Trigger, will sell for some day.
One example of the potential for guitar collecting can be seen at the Web site of long-time Kiss guitarist Ace Frehley, who has made Gibson Les Paul brand guitars his focus. They're being sold under his "signature brand" and their authenticity can be verified through their serial numbers. Frehley guitars for sale have asking prices between $1,000 and $9,500.
Indicative of the pitfalls that await the uninformed, he warns buyers to beware of Chinese knockoffs.
______________________________
CNBC Data Pages:
- Dow 30 Stocks—In Real Time
- Oil, Gold, Natural Gas Prices Now
- Where's the US Dollar Today?
- Track Treasury Prices Here
______________________________
Disclosures:
TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.