In today’s financial environment, stock markets are reaching all-time highs, and interest rates are on a downward trend. This combination creates a challenging situation for investors relying on traditional income-generating assets like stocks, bonds, and CDs. With stock prices inflated, the returns on CDs and bonds shrinking due to lower interest rates, many investors are seeking alternative strategies to diversify their portfolios and generate income.

In this blog post, we’ll explore several alternative investment options—such as covered calls, put writing, gold, silver, bitcoin, and preferred stock—that can help investors maintain income and diversify their portfolios outside of traditional stocks and bonds.

 Overview

Covered calls are a popular strategy for investors who want to generate additional income from their existing stock or ETF holdings. This strategy involves selling a call option on an asset you already own, which allows you to collect a premium in exchange for agreeing to sell the asset at a predetermined price (strike price) if the buyer exercises the option.

For investors looking to employ this strategy without having to manage individual options, covered call ETFs like JEPI (JPMorgan Equity Premium Income ETF) can be a perfect solution. JEPI, for example, is designed to provide monthly income by investing in a portfolio of large-cap stocks while using covered calls to enhance yield.

Mechanics of Covered Calls with ETFs

Benefits of Covered Calls with ETFs

 Risks of Covered Calls with ETFs

 Strategic Considerations

Covered calls are best suited for investors who own stocks or ETFs they plan to hold for the long term and who are looking for ways to generate additional income from those holdings. It’s particularly useful in a market where the investor expects the stock price to stay relatively stable or rise slightly. Investors should also consider their overall portfolio risk, as covered calls do not protect against large losses and are best used with stocks that the investor is comfortable holding.

 Overview

Put writing, also known as selling put options, is a strategy in which investors sell put options on stocks or ETFs they are willing to buy. The seller collects a premium from the option buyer in exchange for the obligation to buy the stock at a predetermined price (the strike price) if the option is exercised. The strategy works best when the investor believes the price of the underlying asset will stay above the strike price.

For investors looking to engage in put writing without handling individual options, put writing ETFs like WTPI (Wellington Tactical Premium Income ETF) can offer a straightforward solution. WTPI uses the put writing strategy to generate income by selling put options on a diversified portfolio of stocks.

Mechanics of Put Writing with ETFs

Benefits of Put Writing with ETFs

Risks of Put Writing with ETFs

Strategic Considerations

Put writing is ideal for investors who are neutral to bullish on a stock and willing to purchase it at a discount if the price falls below the strike price. The strategy can provide a consistent income stream, but it does come with the risk of potentially having to buy a stock at an unfavorable price.

Investment Vehicles

Gold and silver have been prized as stores of value for centuries, especially during times of economic uncertainty. These metals do not generate income in the traditional sense, but they serve as a hedge against market volatility, inflation, and currency fluctuations.

Investors can gain exposure to gold and silver in several ways:

Historical Performance

Gold has a long history of performing well during economic crises and periods of high inflation. It tends to retain value or appreciate when other markets are experiencing downturns. Similarly, silver, though more volatile, often tracks gold’s movements and can also serve as a store of value.

Over the past few decades, both metals have seen substantial price increases, though with periods of volatility. Gold, for example, has appreciated dramatically from under $300 an ounce in the early 2000s to over $1,800 per ounce in recent years.

Strategic Considerations

Gold and silver can be powerful diversifiers in a portfolio, especially when markets are uncertain or inflation is rising. However, unlike stocks or bonds, they do not generate dividends or interest, so their primary value comes from price appreciation.

Overview

Bitcoin is a decentralized digital currency that operates on a peer-to-peer network, independent of any central bank or government. Over the past decade, Bitcoin has emerged as a prominent alternative investment due to its potential as a hedge against inflation and as a store of value.

Historical Performance

Bitcoin’s performance has been marked by dramatic price swings. From under $1,000 per Bitcoin in 2017 to over $60,000 in late 2021, Bitcoin has captured the attention of both retail and institutional investors. Despite its volatility, Bitcoin has demonstrated impressive long-term growth potential, making it an attractive investment for those willing to accept higher risk for potentially higher returns.

While Bitcoin has outperformed many traditional assets in the last decade, it is important to note that it remains highly speculative and can experience significant price fluctuations over short periods.

Strategic Considerations

Bitcoin is a relatively new asset and can offer high returns for investors willing to take on more risk. However, it is essential to approach Bitcoin with caution, particularly in terms of portfolio allocation. Due to its volatility, Bitcoin should likely be a small portion of a diversified portfolio.

Characteristics

Preferred stocks are hybrid securities that combine characteristics of both bonds and common stocks. They offer fixed dividends, which are often higher than those of common stocks, providing a steady income stream. In the event of liquidation, preferred shareholders have a higher claim on assets than common stockholders but are subordinate to bondholders.

Historical Returns

Preferred stocks have historically provided attractive yields, especially in low-interest-rate environments. As of March 2025, the median yield on preferred stocks is around 6%, with some preferreds offering yields as high as 7%. These returns tend to be higher than what is available from bonds or common stocks, making them an appealing option for income-focused investors.

Strategic Considerations

Preferred stocks can offer stability and income, but they are also sensitive to interest rate changes. When interest rates rise, the value of preferred stocks may decline, as their fixed dividends become less attractive relative to newly issued bonds. Investors should consider the potential interest rate risk when incorporating preferred stocks into their portfolios.

Overview

Hedge funds are pooled investment funds that employ a variety of strategies to generate returns for accredited investors. These funds typically use sophisticated techniques such as long/short equity, market-neutral strategies, arbitrage, and global macroeconomic strategies.

Performance

Hedge funds are known for their goal of generating positive returns regardless of market conditions. However, the performance of hedge funds can vary widely depending on the fund’s strategy and the manager’s skill. Hedge funds typically charge high fees, including management and performance fees, which can eat into net returns.

Strategic Considerations

Hedge funds are generally limited to accredited investors due to regulatory restrictions. These funds can be highly diversified and offer exposure to strategies not available in traditional investment vehicles. However, the complexity and fees associated with hedge funds mean that they are not suitable for all investors.

Overview

Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-producing real estate. REITs allow individual investors to pool their money and invest in large-scale, income-generating properties without directly owning the properties themselves. There are two main types of REITs: equity REITs, which own and manage physical properties, and mortgage REITs, which invest in real estate loans.

Performance

REITs have a track record of providing solid returns, often delivering dividend yields higher than traditional stocks and bonds due to their requirement to distribute at least 90% of taxable income to shareholders. Historically, equity REITs have generated average annual returns of around 8% to 12%, depending on market conditions. Mortgage REITs, while offering higher yields, tend to be more volatile due to their exposure to interest rate fluctuations and the performance of real estate loans.

REITs can offer a combination of steady income through dividends and potential for long-term capital appreciation. However, like any investment, their performance is subject to economic conditions, interest rate changes, and real estate market fluctuations.

Strategic Considerations

REITs are an attractive option for investors looking to diversify their portfolios and gain exposure to the real estate sector without the need for significant capital or direct property management. Equity REITs can provide stability and steady income, while mortgage REITs may offer higher yields but come with additional risk.

Investors should be aware of the risks associated with REITs, such as interest rate sensitivity and market volatility. Rising interest rates can increase borrowing costs for REITs, potentially affecting their ability to generate income and pay dividends. Additionally, REITs are subject to the performance of the real estate market, including changes in property values, tenant vacancies, and demand in specific sectors.

Overview

Structured products are investment vehicles created by financial institutions to offer tailored exposure to different asset classes while providing specific risk-return profiles. One popular type of structured product is the market-linked certificate of deposit (CD). These products combine the safety of traditional CDs with the potential for higher returns linked to the performance of underlying assets like stocks, indexes, or commodities.

Market-linked CDs allow investors to earn a return based on the performance of a specified market index or a group of assets over a defined period. While they provide principal protection (i.e., the original investment is returned at maturity), they typically offer no guaranteed return, with the payout tied to the performance of the market index or asset class.

Performance

The performance of market-linked CDs is primarily driven by the performance of the underlying index or asset they are tied to. Unlike traditional CDs, which offer fixed interest payments, market-linked CDs may offer returns that can vary significantly, depending on how the underlying assets perform.

Historically, these products have offered higher returns than traditional fixed-rate CDs due to their market exposure. However, the returns are not guaranteed, and the investor’s return may be limited by the structure of the product (e.g., a cap on returns). The principal is typically protected, making these products attractive to conservative investors looking for exposure to the market with lower risk.

Strategic Considerations

Structured products like market-linked CDs can be an appealing option for investors looking for principal protection with potential upside exposure to markets. However, it’s important to note that the returns on these products are not guaranteed and are often capped.

They can be a good choice for risk-averse investors who want to participate in the market’s upside but are not willing to take on the full risk of equity investments. These products tend to be more complex than traditional CDs, so it’s crucial for investors to understand the structure and the factors that could influence their returns.

Investors should also be aware that market-linked CDs usually come with long-term lock-in periods, meaning that the funds cannot be easily accessed before maturity without incurring penalties. Additionally, investors should consider the creditworthiness of the issuing institution, as the product’s safety depends on the institution’s ability to honor the principal repayment at maturity.

As the stock market remains high and interest rates continue to decline, diversifying into alternative investments can help investors maintain a balanced and profitable portfolio. Strategies like covered calls, put writing, gold, silver, Bitcoin, preferred stocks, hedge funds, and REITs offer ways to enhance income, reduce risk, and protect against market volatility.

By carefully considering these alternatives, investors can achieve greater diversification, mitigate risk, and continue to generate steady income—whether the market is bullish or bearish. It’s important to evaluate your risk tolerance and investment goals before diving into any alternative strategy, and always consult a financial advisor to ensure the right fit for your portfolio.

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