Forget stocks - Build your nest egg with unconventional investments

By Jeff Reeves - MarketWatch

In the fourth quarter of 2008, U.S. GDP contracted by 6.3% — the worst quarterly drop in over two decades — and by almost 6% again in the first quarter of 2009. Though we certainly have our troubles, there’s not nearly the gloom and doom out there that was persistent on Wall Street back then. The economy is still squeaking out a bit of growth, after all.
But does this mean it’s OK to sound the “all clear” for the stock market? Hardly. The fact is that while the economy is limping along, stocks are at best moving sideways with little appreciation. When you consider that a host of other investments are trouncing equities, it may make sense to sell off all your stocks and move your nest egg elsewhere rather than ride the roller coaster.
Here are seven investments beating stocks right now — and which may continue beating stocks going forward. Some are obvious, and some are a bit out there. But all have the potential to grow your nest egg in uncertain times.

Investment 1: Gold

Gold bugs can get a bad rap because a handful wacky of gold investors really are convinced the U.S. dollar will disappear as a solvent currency and that we’ll all go back to bartering sheep.But it’s hard to knock gold’s performance, either in the last year or the last 10 years. The yellow stuff is up about 25% in the previous 12 months — compared to less than 10% for the broader stock market. And gold prices were around a measly $300 an ounce a decade ago — a quarter of current valuations — whereas the stock market has actually seen a small loss during that time.
Don’t care for messing with heavy coins? Well even retail investors could have shared in much of this boom. The SPDR Gold Trust /quotes/comstock/13*!gld/quotes/nls/gld (GLD 126.28, +0.07, +0.06%)   ETF launched in November 2004, and those first investors in this fund are sitting on a hefty 170% return if they haven’t sold yet. The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,739, -21.72, -0.20%)  , by comparison, is off slightly in the same period. Read “5 Gold Mutual Funds to Play the Bullion Boom.”

Investment 2: A self-storage business

There is always a bull market somewhere — and if you haven’t heard of the self-storage boom, it may be because the smart money is beating you to it. A recent Wall Street Journal article quoted the chief executive of a California self storage company now getting calls from institutional investors such as the State of Michigan Retirement System and Goldman Sachs.
Why? Because if managed properly, a self storage business produces annual returns of 5% to 10% like clockwork. You buy a property, outfit it with locks and collect rent checks — a landlord but without the hassle of fixing sinks and window latches for tenants. To top it off, you may also find some tax advantages to owning your own business and writing off expenses.
There are risks, of course — the least of which include active management to avoid high vacancy rates and prevent losses due to property damage and theft. Also, a self storage business is incredibly illiquid and may be difficult to get out from under when you’re ready to retire.
But done right, all you have to do is deliver the keys and pick up the monthly checks. Not a bad gig, and business is booming as a poor real estate market keeps many families in smaller lodgings without room for all the furnishings from their foreclosed homes.

Investment 3: Cash

You knew this was coming, so I’ll be brief. The stock market is flat year-to-date, the five-year return for the S&P 500 /quotes/comstock/21z!i1:in\x (SPX 1,134, -5.51, -0.48%)   is down nearly 10%, and the 10-year return is down 27%. That in itself is enough to entice investors to move their cash from a brokerage account to their bank account. But here is a more compelling argument with an eye to the future:
The specter of deflation is brought up a lot by the bears. If you truly believe in this scenario, then go to cash — because it will “appreciate” just sitting under your mattress. Think of it this way: If prices drop 3% on cars, houses and other goods, you’ve just “made” 3% thanks to your increase in purchasing power. Add a trickle of a few percentage points in a CD and you’re not doing bad. After all, as Pimco icon Bill Gross said in July, “I think most asset classes are attractive but will only provide 4% to 5% returns going forward.” And don’t forget that unlike other investments, there are no fees to pay and you can’t beat the liquidity that cash provides.
Of course if the opposite takes place — inflation instead of deflation — then you’re in trouble. Read “A ‘Sure’ Bet on Interest Rates.”

Investment 4: Lease your land

Real estate prices are soft, so selling extra acreage now may not be wise. But if you live near an area of spotty cellular coverage or your family plot is located above a natural gas field, then you can put the land to work for you instead.
Cell tower leases are picking up as major carriers like Verizon Communications Inc. /quotes/comstock/13*!vz/quotes/nls/vz (VZ 32.42, +0.04, +0.12%)   and AT&T Inc. /quotes/comstock/13*!t/quotes/nls/t (T 28.66, +0.07, +0.25%)  fight to upgrade their networks. Owners of well-situated areas can lease land or roof space to wireless companies for fees ranging from a few hundred dollars to a few thousand dollars a month.
Same goes for oil and gas deposits. Depending on the mineral resource, annual rentals can range from a few dozen dollars to hundreds of dollars per acre. And don’t think you need to live in Texas to tap in — rural areas of New York and Pennsylvania are rich with natural gas reserves.
The downside? For one, you have to get used to some new structures on your land. And in the case of resource wells, you’re much better off retaining a lawyer to navigate oil and gas law. But it’s hard to deny the appeal of just sitting there and letting your idle land work for you.

Investment 5: 10-year T notes

Those wise investors who jumped into Treasury notes with a 10-year maturity a decade ago have done very well. Interest rates in September 2000 were around 5.5%. The Dow Jones, on the other hand, is off 7% as of this writing, the S&P 500 has given up 26% and the Nasdaq /quotes/comstock/10y!i:comp (COMP 2,335, -14.80, -0.63%)   is down 43% thanks to the tech bubble’s burst. Ouch.
Obviously rates are much lower now, so future returns look anemic for current investors. But if the market moves sideways or dips further, then a 3% return each year may not look too shabby. It’s also worth noting that as recently as July 2007 investors could get as much as 5% yield on 10-year T notes. Smart money was buying bonds before the financial crisis and could reap the rewards.
So is smart money still buying bonds? Well, that is the real question. In May, before the sharp contraction in the markets, investors could have locked in nearly 4%. That may prove to be a good long-term return. But currently rates are south of 3% so the market has to stay very poor for the next decade — and rates equally weak — for such a move to be profitable. Read “What Investors Need to Know About a Bond Bubble.”

Investment 6: Build America Bonds

The Economic Recovery and Reinvestment Act — known colloquially as “The Stimulus” — created Build America Bonds. The goal was to reduce municipal bond borrowing costs via a federal subsidy.
The first issues came out in April 2009 right after the market lows, and obviously didn’t keep pace with Wall Street’s surge in the spring and summer of that year. But over the long term they may prove wise investments, Some of the first BAB issues included a $250 million bond issue for the University of Virginia, with a 30-year maturity, a glowing triple-A grade from all three major rating agencies and a plump yield of 6.22%. Not bad, but the market’s roughly 30% gain since April of last year outpaces that and it would take a steep decline to bring the two to parity.
But looking forward, Build America Bonds have been doing very well lately as the market has hit a wall. They yield more than the 10-year Treasurys and there’s less fear of a default since the loans are in fact backed by Uncle Sam and the stimulus cash. For instance, just last week the North Carolina Eastern Municipal Power Agency priced $182 in 2021 debt at a 3.29% yield. That’s over half a percentage point better than 10-year T notes.
And if you’re not up for buying the bonds themselves and want more liquidity, consider the PowerShares Build America Bond ETF /quotes/comstock/13*!bab/quotes/nls/bab (BAB 26.62, +0.02, +0.08%)  . The fund is up 8% this year, compared with a slight decline for the broader market.

Investment 7: Parking lots

Akin to self storage, parking lot ownership can be very profitable if you have good management skills. You just buy a big hunk of asphalt with a shack and some meters on it, and collect the daily and monthly dues. In fact, most urban areas that have need for parking lots also boast parking lot service firms so you don’t ever have to lift a finger.
Annual returns of 6% to 8% are possible according to industry experts — and best of all, in urban areas the land can be very profitable development real estate down the road (presuming an economic recovery, of course). An added plus is that owners can raise rates easily so there’s no fear of inflation and the ability to adjust quickly to keep business profitable.
Then again, the risks should be obvious to anyone who has walked away from an ill-lit parking lot entrusting their vehicle to an “attendant” texting his friends as he watches a portable TV instead of the cars. Skimming off the top of an all-cash business is easy for untrustworthy employees, and potential liabilities for damaged Jaguars and Cadillacs abound. But if managed right, the steady cash from a parking lot can keep you smiling and return more than your brokerage account in the years to come.

Jeff Reeves is editor of InvestorPlace.com

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