5 Best Long Term Investments To Build Wealth

Best long term investments

You may not be a fan of short term investments because of the tiny rewards, you will likely choose the best long term investments over the short as it has higher rewards.

Mostly short-term investments are about capital conservation while long-term investments build wealth for you.

If you are looking for the best long-term investments, we cover it here in this article,  since you would prefer investments that will help you create wealth.

Long-term investments help you build an investment for better income that will serve you in later life, and make your life more meaningful even after retirement.

A consideration for this investment may give you everything you need in life.

Long-term investing simply puts the investor into higher rewards, after accepting a certain level of risk and capital inclusion. This brings about capital appreciation which can lead to wealth creation.

That being said, to make this happen, you need to create the level of income that can give you the life you desire through long-term investments.

Best long term investments to consider

1. Real estate

Real estate is one of the best long-term investments ever, you may need good substantial money to start to get higher returns.

Investing in real estate for higher returns comes in three forms; you can go with Real Estate Investment Trusts (REITs), rental properties, and real estate crowdfunding.

2. Stock

Stocks are the primary long-term investment. They have the following advantages:

This is an investments that you don’t need to manage property or a business. you have a profit from income generating companies.
In a real sense, investing in stocks is investing in the economy.

Stocks can rise in value, often spectacularly over the long term. Many stocks pay dividends, which provide you the investor with a steady income.

Most stocks are very liquid, enabling you to buy and sell them quickly and easily.
You can spread your investment portfolio across dozens of different companies and industries.
You can invest across international borders.

The many benefits of investing in stocks haven’t been lost on investors. The average annual return on stocks, based on the S&P 500, is on the order of 10% per year.

That includes both capital gains and dividend income.

There are two very broad categories of stocks you might be interested in growth stocks and high dividend stocks.

Growth Stocks
These are stocks of companies with the primary attraction of long-term growth.

They often pay no dividends at all, and even if they do they’re very small. Companies with growth stocks primarily reinvest profits in growth, rather than paying dividends to stockholders.

The returns on growth stocks can be dramatic.

High Dividend Stocks
Much the opposite of growth-oriented companies, high dividend stocks are issued by companies that return a substantial amount of net profits to shareholders.

From an investor standpoint, high dividend stocks often pay yields higher than fixed-income investments.

High dividend stocks have another advantage. Since they’re stocks, they also have the prospect of capital appreciation. An annual dividend yield of 4% or 5%, plus 5% to 10% per year in capital appreciation, could produce one of the best long-term investments possible.

Some investors prefer high dividend stocks. The dividend paid often makes the stock less volatile than pure growth stocks. There’s even some evidence that high dividend yields provide some insulation against downturns in the general stock market.

But high dividend stocks aren’t without risks either. A decline in earnings could make it difficult for a company to pay dividends.

It’s not unusual for companies to either reduce or eliminate their dividend. As you might expect, the stock price can collapse when they do.

The best way to buy individual stocks is through a large, diversified low-cost investment broker. They offer the best combination of investment options, investor information, and low (or no) trading fees.

Long-term Bonds

Long-term bonds are interest-bearing securities with terms greater than 10 years. The most frequent terms are 20 years and 30 years.

There are different types of long-term bonds, including corporate, government, municipal, and international bonds.

The primary attraction of bonds is usually the interest rate. Since they’re long-term in nature, they usually pay higher yields than shorter-term interest-bearing securities.

The biggest risk to bonds is that interest rates will rise. Let’s say you purchase a 30-year US Treasury bond with a 3% yield in 2018. But by 2020, the yield on similar securities is 5%.

The risk is that you will be locked into the bond for another 28 years, at a below-market interest rate.
Bond prices tend to move inverse to interest rates. That means when interest rates rise, the market value of the underlying bond declines.

How Bonds can Become One of the Best Long-term Investments
If interest rates fall below the rate you purchase your bond at, the market value of the bond could rise.

Let’s use the same example as above, except that in 2020 interest rates on the 30-year bond have fallen to 2%.

Since your bond is yielding 3%, it may rise to a market value of $1,500, which would produce an effective yield of 2% ($30 divided by $1,500).

In a falling rate environment, bonds would not only provide you with interest income but also capital appreciation – much like stocks.

Now in all fairness to reality, that’s an unlikely scenario right now. Interest rates continue to be running at near-record lows.

The long-term average yield has been more in the 6% to 8% range. If that’s the case, declining interest rates from here look pretty unlikely. But who knows?

Mutual Funds and Exchange Traded Funds (ETFs)

Mutual funds and exchange-traded funds aren’t investments themselves. Instead, they function as portfolios of a large number of different stocks and bonds.

Some are professionally managed, while others track popular market indexes.

But because of that diversification and management, each can be one of the best long-term investments available.

Funds are particularly valuable for people who want to invest but don’t know much about the process. All you need to do is allocate a certain amount of your investment capital into one or more funds, and the money will be invested for you.

Also, most people who invest in individual stocks and bonds don’t perform as well as funds do.

Funds offer advantages beyond investment management. You can use funds to invest in the financial markets virtually any way you want.

  1. Mutual Funds
    Mutual funds generally fall into the category of actively managed funds. That means the purpose of the fund isn’t to simply match the underlying market index, but to outperform it.

The same is true within industry sectors. Though there may be 100 companies engaged in a specific industry, the fund manager may choose 20 or 30 he or she believes to be the most promising.

The fund manager may use various criteria to determine the top performers – it all depends on the purpose of the fund.

Mutual fund managers have varying degrees of success at active management. Most don’t outperform the market. Only about 22% of mutual funds outperform for as long as five years.

  1. ETFs
    ETFs are set up similar to mutual funds, in that they represent a portfolio of stocks, bonds, or other investments.

But unlike mutual funds, ETF’s are passively managed. That means that rather than specific securities being selected within the fund, it instead invests in an underlying index.

The most common is the S&P 500. That gives the fund full exposure to the US large-cap market.

And since it includes the largest companies in virtually every industry, all major industry sectors will be included.

ETFs can also invest in mid-cap and small-cap stocks, based on indexes that represent those markets.

In each case, the ETF attempts to closely match allocations in the underlying index. This includes not only the number of stocks in the index but also matching the percentage representation in the index of each security.

The limitation of ETFs is that they merely seek to match the performance of the underlying index, not to exceed it.

  1. Robo-Advisors
    This is another important consideration when investing, particularly if you’re new at it and don’t know how to do it successfully. Robo-advisors have come up fast in less than a decade, and are attracting investors at all levels of experience.

The reason is that Robo-advisors handles investing for you.

All you need to do is fund your account, and the platform will create and manage your portfolio. That includes reinvesting dividends and rebalancing as necessary.

Many even offer special services, like tax-loss harvesting.

They construct a portfolio of both stocks and bonds, using low-cost ETFs. But some also invest in alternatives, like real estate and precious metals. You can find a Robo-advisor covering just about any investment angle you can think of.

Some of the Robo-advisors include Betterment, and Ally Invest
If you’d like to begin investing, but don’t know how Robo-advisors are an outstanding way to start.

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