The Best Types of Long-Term Investments

Investing , finance , money

Whether your investment goal is retirement, financial independence, or simply to grow your personal wealth, a successful investment reaps real rewards over the long term.  

The foundations of long-term investing 

It’s tempting to jump into long-term investing, but before you start allocating funds, there are a few things you need to do first: 

Get your finances in order 

Look at your current financial picture – income, assets, debts, expenses, emergency fund. You won’t know how much you have to invest unless you’re keeping track of the day-to-day costs of supporting your current lifestyle.  

Make investment goals 

Everyone has different investment goals. Whether your goals are retirement, paying for college for your kids, or even buying or upgrading your home, it’s essential to get specific to your goals. 

The next piece is establishing your timeline for reaching your goals. How many years before your children go to college? Before you retire? Typically looking at long-term goals means establishing timelines that are 5, 10, or 15 or more years away. 

Mapping the timeline to reach your goals will help you establish the types of investment assets for your long-term portfolio and how much risk you should take with those investments. 

Pick a strategy and stick with it 

Changing your path and asset mix of your long-term investment every year may not help you weather an economic bump in the road.  

Consider breaking your long-term assets into different sections based on your target goal date: 5-15 years, 15 to 30 years, and 30+ years. Treat each section with a different strategy and risk tolerance, reducing risk and treating the closest target date more conservatively. This approach will give your further-timed investments have more “cushion” to absorb market changes or volatility in the long-term. 

Understand your risks 

Every investment asset has a different risk associated with it. Take the time to understand the risk associated with your asset type and match it to the risk tolerance associated with each of your time-based goals. 

Additionally, do some self-assessment and ask yourself how much risk are you willing to take, even with long-term financial goals. Every investor has a different tolerance for risk, and taking your risk preferences into account is something smart investors do.  

Diversify, diversify, diversify 

The old saying goes, ‘Don’t put all your eggs in one basket,” and this holds true for long-term investments as well.  

Investments with different risk tolerances will feel the effects of market volatility in different ways. Diversifying your portfolio assets also means diversifying your risk and will help your portfolio withstand any economic bumps. 

Many investors are starting to look for alternative investments like public non-traded REITs and other real estate investments to provide asset diversification within their portfolios. These are long-term investments that typically weather economic changes and market volatility better than stocks and can provide higher returns than other conservative investments. 

Watch investment costs 

Costs associated with your investments can reduce your gains. Watch the expense ratios of any funds you invest in and any management or brokerage fees and commissions associated with your investments.  

Every trade, every shift in strategy, any change to financial advisors could have a hard cost associated with it, and it might seem small today, but in the long-term, all the little costs can add up and compound over time. 

Types of long-term investments 

Growth stocks 

Growth stocks are shares in a company expected to grow significantly faster than the average market rate. 

  • Earnings are usually reinvested in the company to accelerate growth (they generally don’t pay dividends).  
  • Investors’ returns are tied to capital gains when they sell their shares. 
  • Relatively volatile – requires a high-risk tolerance or commitment to hold the stock for several years. 
  • Common examples: Facebook and Amazon 

Stock funds 

Stock funds pool Investors’ money and purchase stocks at volume. Stock funds invest hundreds of different company stocks or “equities,” an investment achievement that’s typically out of reach for an individual investor. 

  • Suitable for investors looking to be more aggressive with risk but also more hands-off. 
  • Investors receive the weighted average of returns from all companies in the fund. 
  • Stock funds can specialize or diversify in their portfolios. 
  • Less volatile than owning individual stocks. 

Bond funds 

Bond funds are similar to stock mutual funds in that investors’ money is pooled, and the fund manager invests the pool according to what they feel are the best investment opportunities.  

Bond funds are usually categorized by the type of bond in the fund – the duration, estimated risk, issuer, and other factors. 

  • A relatively stable investment. 
  • It can be a diversified investment depending on the breadth or variety of bonds held in the fund. 
  • Returns are not as high as other, riskier investments. 

Dividend stocks 

Dividend stocks are companies that pay out regular dividends, or cash payouts, on earnings. They can provide investors with stable returns, but they’re unlikely to grow in value as fast as growth stocks.  

Well-established companies that don’t have as great of a need to hold their cash usually issue these stocks. 

  • Tend to be less volatile than growth stocks but still hold risk. 
  • Dividend distributions are not guaranteed. 
  • Disbursements can range from 2-3% annually but can raise their payouts 8-10% per year for long periods. 

Target date funds 

Target date funds are mutual funds or exchange-traded funds (ETFs) designed to grow assets over a set period. These funds tend to become more conservative as you age, so investments are safer as the target date approaches. 

  • Ideal for investors who don’t want to manage a portfolio. 
  • Popular for many work-sponsored 401(k) retirement plans. 
  • Carry the same risk as stock funds or bond funds. 

Real estate 

Real estate is considered to be one of the ideal long-term investments. It can take some initial capital to get started, and the returns usually come as rent or asset appreciation. Real estate can be attractive to investors because there are several ways to fund this investment. Traditional real estate investing can utilize a mortgage or bank loan, and a Real Estate Investment Trust (REIT) can be funded with cash or an after-tax retirement account like an SDIRA. 

31% of respondents in a recent Bankrate survey named real estate as their favorite long-term (10+ years) investment 

  • Real estate provides active (holding and managing physical properties) or passive investment (REIT) options. 
  • Multiple investment opportunities based on personal risk tolerance. 
  • Offers investors the opportunity to diversify an investment portfolio with can insulate investments from market volatility.  

Robo advisor portfolio 

Robo-advisors – or automated investing services, use algorithms and advanced software to build and manage an investment portfolio based on your goals, time horizon, and risk tolerance.  

If you’re looking for a more hands-off approach to investing, this could be an investment option worth considering.  

  • Typically have low or no minimum balance requirement.  
  • Lower management fees. 
  • Investors own and set the risk tolerance on their investments. 

IRA CD 

IRA CDs are ideal for investors with a low tolerance for risk and who want a guaranteed income. An IRA is essentially an IRA where all of your money is invested in Deposit or (CD) certificates. 

  • Tax-friendly investment option. 
  • Ideal for risk-averse investors. 
  • Returns might not exceed the rate of inflation. 
  • FDIC guaranteed investment (up to $250k per depositor). 

Overall, building wealth through investments is about focusing on your end financial goal. The first step is learning to explore your future plans and reverse-engineer long term investment options to help you reach those goals while accommodating your risk tolerance.  

About Upside Avenue

For decades, the ultra-wealthy and financial institutions have been putting their money to work in real estate—now with Upside Avenue, you can too. We provide access to a professionally managed, diversified portfolio of income-producing multifamily real estate for as little as $2,000. Learn more about the Upside Avenue Multifamily REIT with targeted returns of 10-15% IRR.