Best Long-Term Investments  – Build Wealth & Retire Early
Top Investments to Grow Your Wealth in 2022
Long-term investments might not be as enticing as shorter-term strategies.
However, you do not need in-depth knowledge of the market when you invest in the long run, nor do you need to understand technical indicators to effectively manage your portfolio.
If you are looking to build your wealth over the course of time, or meet your far-off financial goals, then long-term investing is the golden rule.
Such holdings allow you to balance the risks more effectively while giving you the option to earn compound interest.
Today, investors have a myriad of options to build a diverse portfolio that will sustain well in almost any investment landscape.
In this article, we have compiled a comprehensive list of the best long-term investments to consider in 2021.
1. Growth Stocks
In simple terms, growth stocks are equities of publicly-listed firms that are expected to grow at a faster rate than the average. Such firms are generally expected to outperform other company's operating in the same industry as well as the wider markets.
However, these company's also tend to reinvest any profits they make back into the business. As such, it is rare that you will receive a dividend – at least, not until much further down the line.
It is challenging to put a pin on which type of company's fall within the growth stock sector. In the current landscape, the majority of such firms tend to be in the technology sector, especially those in the early stages of operations.
One prime example is Tesla. The company went public only in 2010, and its stocks increased by nearly 700% in 2020 alone.
If you had invested in Tesla in 2010, it would have cost you a mere $1,700 for 100 shares – at $17 per share. Today, the same number of Tesla shares would be worth $854,00 – at $854 per share. That is an incredible growth rate for any asset.
Having considered the profit potential, it is worth noting that growth stocks can also be extremely risky. Due to the volatile nature of these stocks, the general rule of thumb is to hold your investment for at least five years.
If you are looking for good growth stocks to invest in we recommend either Stock Advisor or Rule Breakers from the Motley Fool. These services have a proven track record of recommending some of the best high growth stock opportunities. They also offer a bundle discount for both services which comes with a 30 day money back guarantee.
2. Dividend Stocks
While growth stocks are primarily known for their rapidly increasing value, dividend stocks are more preferred by those who seek solid and steady returns.
These are company's that choose to share their profits with stockholders. This allows you to access both long-term capital gains as well as make regular returns.
Let us clear the mist with an example:
- Let’s say you hold 100 shares of IBM – at $118 per share.
- IBM dividends are paid out quarterly.
- If, for example, IBM paid a 10% dividend yield over the course of the year, you would have received $1.18 per share.
- On your 100 shares, this amounts to dividends of $118.
These dividends will be paid to your online broker account, where you hold the shares.
You can choose to reinvest these dividends, further expanding your profits. Therefore, dividend stocks allow you to make gains in two ways.
Dividend stocks are relatively less volatile when compared to growth stocks. However, that does not mean that there will be no short-term price spikes – especially if the wider markets are experiencing higher-than-usual volatility.
The economy and market conditions will be reflected in the value of dividend stocks as well. If the company does not make sufficient profit to pay out dividends, it might choose to cut or outright suspend its distribution policy.
3. Stock Funds
If you do not want to spend time researching individual company's, then you should consider stock funds as your long-term investment security.
Also known as equity funds, these are investment company's that invest in baskets of stocks. In simple terms, you will be investing in a company that does the research, works out strategies, and subsequently purchases stocks on your behalf.
Most stock funds own hundreds of different equities, often specializing in a specific category. For instance, one stock find might only invest in the tech sector, such as the Vanguard Information Technology ETF.
On the other hand, there are stock funds that invest based on market performance. The S&P 500 and Nasdaq-100 Index funds are prime examples of this.
Stock funds are one of the best ways for you to diversify your portfolio. It allows you to hold the shares of hundreds of company's through one investment – which would be overly cumbersome if you purchased them individually.
That said, you also have to do your homework in finding the right stock funds – as you will be entrusting your capital to be managed professionally by a third-party investment company.
4. Small-Cap Stocks
In the financial sector, small-cap is a term used to describe company's with a small market capitalization. Investors are interested in such firms because they believed that they can grow and establish themselves in the market over time.
For instance, Amazon was once a small-cap company that attracted a lot of investors who believedd in its future potential. And over time, the company has yielded incredible returns for its stockholders.
A small-cap stock can also be a growth stock, given that its market capitalization falls within the $300 million – $2 billion range.
The risks involved in small-cap investments are much higher than the likes of established, blue-chip stocks.
This is because the respective company's have fewer resources to rely on and are likely to have less brand recognition in the market. They might also be prone to the volatility of a rough market – inviting in more risk.
As such, it is paramount that you should do thorough research while choosing a small-cap investment. It is essential to consider the brand philosophy, the potential markets, and the track record of the management team.
In other words – you need time, effort, and some knowledge of the business field to recognize the potential of such company's.
On the flip side, with the right management and strategy in place, small-cap company's offer attractive upside potential.
5. Bond Funds
Bond funds have the same underlying concept as stock funds. The main difference is that in this case, the company will be investing in bonds instead of equities.
There are different types of bond funds available – based on duration, risk/reward, as well as investment strategies. You can choose to invest in bonds issued by the federal government, corporate, municipality, high-yield, mortgage-backed, or even go for a global bond fund.
As you can see, the options are plenty for you to build a diversified portfolio. You can invest in a bond fund that owns hundreds of bond types from multiple issuers – thus reducing your risk in case one or two bonds default.
Corporate bond funds often come with good interest rates – especially if you have exposure to the emerging markets. On the other hand, if you are to invest in US government-issued bonds, this is a low-risk option. In turn, the yield on offer is going to be somewhat unattractive.
6. Real Estate
Real estate has always been considered one of the safest approaches to a long-term investment plan. Although the initial capital injection will be higher in comparison to stock, the US real estate market is as stable as it gets.
Plus, the housing market has continued to appreciate over the course of time. For instance, the median price of a new single-family house in the US was around $331,000 in December 2019. Just 12 months later, the median price had increased to just over $355,000.
This translates to a year-on-year growth rate of 7.4%. Of course, there is no guarantee that house prices will increase at such a rate every year.
And of course, you need to view growth on a regional basis, as certain US housing markets perform better than others. On the flip side, real-estate investments can be heavily leveraged. This is because you can get a home loan with a down payment as low as 3%.
In addition to the long-term returns, you also get to live in the house or rent it out – subsequently earning fixed and consistent income.
The main downside here is that – if you are investing in real estate with cash, you will have a lot of your liquidity tied up in one asset. This will limit your options to diversify your investment portfolio.
Moreover, if you are renting the property, you are likely looking at active management from your side. You will also have to account for the maintenance and mortgage costs.
That said, while the risks of leveraged real estate investing can be high, so can be the rewards. Once you have paid the mortgage, you can benefit from the stability and cash flow that real estate provides.
Bitcoin is undoubtedly the de-facto cryptocurrency of choice – both in terms of valuation and market awareness. Compared to traditional stocks, digital assets are highly volatile and super speculative. As such, the risk/reward ratio is significantly high.
The digital currency started out at a price of less than $0.01 per coin in 2009. In 2017, it hit a record of $20,000 before collapsing to back down to $3,000 in 2018.
Since then, Bitcoin has once again exploded. As of February 2021, the value of one Bitcoin stands at over $37,000.
As you can see, if you had invested in Bitcoin in 2009 and held on to your digital assets – you would be a multimillionaire.
Although the coin continue to be the best-performing security internationally, there are too many variables that could alter its fate in the long-term.
For instance, unlike the other assets, you also have to consider technological developments, internet security, as well as crypto-specific regulation and legislation. As such, it is best that you limit your stake in Bitcoin to a conservative amount – and never more than 5% of your portfolio.
Moreover, the lack of understanding of this technology might discourage many investors from entering a position. This is made worse when you have to trade through online cryptocurrency exchanges or store your coins in a digital wallet.
If this is the case, the best way for you to gain access to Bitcoin is through a regulated online broker. For example, the likes of eToro, Robinhood, and WeBull all allow you to invest in Bitcoin in a regulated and commission-free environment.
8. Automated Investing
The financial sector has evolved dramatically with the involvement of cutting-edge technologies. One such development is to rely on robo-advisors for your investment decisions.
In simple terms, all you need to do is to deposit money into your trading account on a robo-advisor platform, and it will automatically make investments on your behalf based on your preferences.
The platform will ask you to fill out a questionnaire to cover what you need from the advisor.
You can opt for traditional assets or specify that you are looking to invest only in one type of security – such as stocks. If you want to build a diversified portfolio, you can adjust your preferences accordingly.
You can also specify the duration of investments and risk tolerance. Crucially, this is a hands-off approach to investing that will suit newbies with little to no knowledge of trading. This is because the robo-advisor platform will rebalance and re-weight your portfolio as and when it sees fit.
See Also: Stock Picks and Investment Recommendations from Motley Fool Stock Advisor and Rule Breakers.
Long-term investments should be able to outperform inflation while supporting your financial goals.
After all, US banks are still paying well under 0.1% per year in interest – so you’re effectively losing money.
In comparison, any one of the long-term investment options discussed in this article can get you better financial returns. Each, of course, will come with its own risks and rewards.
Ultimately, a long-term investment plan removes the need to concern yourself with the short-term volatility of the wider markets. Plus, this allows you to build your wealth over time in a much more passive nature.
More Stock Market Resources:
- Best Stock Advisor Websites & Services
- Motley Fool Stock Advisor
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- Best Investment Advice Websites
- Motley Fool Rule Breakers
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Did you know that...
- Even within a long-term horizon, it's beneficial to have sub-horizons or milestones to evaluate and adjust your portfolio?
- Investing in collectibles, such as art or vintage cars, is a form of alternative investment that doesn't correlate directly with traditional market movements?
- Leveraged etfs aim to amplify the returns of an index using financial derivatives but come with increased risks?
- The tobin's q ratio, which compares the market value of a firm to the replacement cost of its assets, can offer insights into market valuation?
- In countries where adjustable-rate mortgages are prevalent, rising interest rates can lead to higher monthly payments for homeowners, potentially impacting disposable incomes?
Quotes of the Day:
- "The best investment you can make is in a good company run by good people." - Edward Owens
- "The stock market is filled with individuals who know the price of everything, but the value of nothing." - David Dreman
- "The investor who seeks to profit from the stock market needs to be patient, disciplined, and willing to do his homework." - Irving Kahn
- "The most important thing in investing is not how much you make, but how much you keep." - Thomas Rowe Price Jr.
- "The best investment you can make is in a great company at a fair price." - Richard Rainwater
*Disclaimer: Unless noted otherwise all returns are as of Dec 8, 2023. Past performance is no guarantee of future results. Individual investment results may vary. All investing involves risk of loss.
We provide general information, not investment advice. Some of the links on this page are affiliate links in which we receive a commission when a purchase is made.
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