Here's an alternative I've started to do lately in addition to my retirement stocks.
Peer to peer lending via Prosper.com or LendingClub.com. Essentially you are buying notes for unsecured loans, in tiny slices.
I used prosper in the past and was less than pleased but with lending club it's been great minus one thing, how long it takes from the point where I put up money, until the note is issued. It is decidedly not an invest and forget endeavor.
Anyways, the idea is that people want to borrow money, to do things like consolidate other loans like high interest credit card debt, home improvement, small business loans etc. These are the types of loans you could get at a bank, but eliminating the bank means that people can borrow at a lower interest rate.
Other people, have money and want to earn a return. You can invest as little as 25$ per loan and the company in between services the loan and you collect the interest (minus fees).
In the case of lending club, the interest rates are between 6 and 25% based of course on the risk that the person who receives the loan will default. They have plenty of information to convey the risk, including their own scoring system, the persons FICO, various credit history details (how many late payments etc), their debt to income ratio, and so forth. They also have an area where the person can describe what they are using it for, but it's generally not ideal to let emotion control who gets your money.
The key thing here is that you need to diversify here just the same as anything else, by both investing in enough notes and spreading out your risk profile. The more notes you have, the less impact an individual note defaulting has on the overall portfolio.
The other big thing is that it is a loan, so the payments you receive each month, are principal + interest. Similar to dividend re-investing, but more importantly you have to re-invest these, since you get principal back.
The pros here are:
High interest rates - my blended rate is 10%, but you can go riskier and get 12-15%
Easy to use and manage
Lending club seems on top of rejecting shady applications, they say they accept only 10% of applications, and then they do more checking once a loan is funded.
The cons are:
Long delays to fund loans - Two weeks for me to fund 80% of the loans I have tried.
Lots of maintenance. If you had the suggested 20k+ invested, you'd have to re-invest in 20+ new notes every month, which generally involves checking every few days to see what has funded or not.
The tax issues are more complicated than most although they have streamlined the reporting they give you in terms of the interest you received, defaults etc.
Not very liquid. You can sell your notes, but it takes time to do so.
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