The successful investor knows that diversification goes beyond having a diverse portfolio of stocks, or having a mix of stocks and bonds, or even having a diversified mutual fund with stocks and bonds of all different sorts. To be really diversified when investing money, you need to move beyond Wall Street, and consider Main Street.

Have You Considered Investing Money in Real Estate?

People began heavily investing in real estate right after the dot-com bubble burst, and this caused home values to go through the roof. However, the housing market has been cooling recently, and home prices are on the decline.

If the trend continues, a savvy investor would wait a few more months and then begin investing in real estate! After all, the popular saying in real estate is, "you don't make your money when you sell, you make your money when you buy" - and you do this by investing money when home values are down.

If fixing toilets and dealing with tenants isn't for you, consider investing in real estate investment trusts (REITs). REITs trade on major exchanges, right alongside stocks, but this doesn't make them equally susceptible to market crashes.

In 2002, while the Dow Jones Industrial Average plummeted, smart investors were investing money in REITs - and they made a killing. One reason is that REITs have what Wall Street insiders call "downside protection," meaning that they can only go so low.

The reason is that REITs have to distribute 90 percent of their investment income back to shareholders. When you buy REITs, you're buying a fat monthly check - almost like rent, but without the toilets and tenants.

How About Investing Money in a Small Business?

Another way of diversifying your holdings is investing in a small business. You can either start a company yourself, or look for a young, entrepreneurial firm to invest in.

The best thing about investing in small businesses is that their success isn't tied to Wall Street. Take a big company like Costco, for example. Its sales and profits grew every year during the bear market of 2000 through 2003, and yet its stock price plummeted.

But what if you owned a piece of a small business with sales and profits that went up each year? You wouldn't have to worry about Wall Street's fickleness.

When the market is in a downtrend, investing money in venture capital can be a great idea. Companies looking for venture capital are small businesses with big dreams. They eventually want to take their businesses public through a Wall Street IPO (initial pubic offering).

By investing in companies like these during a bear market, you're likely to get a better deal. However, most businesses looking for venture capital funding require relatively large investments, so this tactic is best for more affluent investors.

A Final Tip for Investing Money - Beat the Bank!

Investing is all about making a profit for yourself, but what if you could help others in the process? If this sounds appealing to you, consider investing money through Prosper.com loans.

Prosper.com allows you to beat the bank by being the bank. You can evaluate prospective borrowers, set the interest rates they'll pay, and loan amounts as low as $50. Monthly payments are then taken from their checking accounts and deposited into yours.

You win because by investing money with Prosper, you get a higher return then you would from a savings account, and borrowers win because they get a lower interest rate than they would from a bank. Thus, investing through Prosper.com is a win-win situation.