Right now, investing is one of the best ways to secure a stable financial future. Thus, more and more people are oriented towards obtaining passive income in the future, especially with the thought of financial stability after retirement age.
At the same time, more and more young people want to achieve financial independence and understand that for this to be possible, it is necessary to give up part of their funds now.
But to reap the maximum benefits, you need to invest smartly and learn how to make your money work for you.
Therefore, long-term investing can be one of the best strategies if you want to enjoy passive income later in life.
In this article, we will help you better understand what are the best long-term investments for you and what strategies you can use to achieve a positive return.
What is long-term investing?
The phrase “long term”, as the name suggests, refers to financial instruments that you intend to hold for a period of more than a year. This period can vary from one year to 30 years, but on average, an individual invests for the long term somewhere between 7 and 10 years.
Unlike short-term investments that will be sold quickly, long-term ones will be held for a long time and sold after many years, if not ever.
Thus, they have the power to survive the changes in the market, ultimately having a much better return. This is also the main reason why long-term investments are considered by experts as one of the best investment methods.
Why are long-term investments important?
Generally, people invest for the long term with the objective of getting profit later, years from now.
Many invest with the possibility of purchasing a home at some point, or for the future education of the child, but most have as their main goal an additional income when they retire.
That is why it is important to start investing as early as possible, to do it consistently and as often as possible so that you can later enjoy the financial benefits that will arise from this long effort.
So, considering the above, if you’re still thinking about saving because it’s more convenient, keep in mind that when you keep money in place, it doesn’t give a return, but, on the contrary, depreciates.
The solution to deal with market volatility and inflation is to invest for the long term.
In addition, by investing in the long term you help the capital market, that is, you contribute to the development of the industry.
What are the advantages and disadvantages of long-term investments?
So far we have talked about the biggest advantage oflong-term investments, which is that they almost always have a positive return.
However, to avoid certain mistakes you need to understand the mechanism behind and the particularities of each transaction.
Experts and studies have shown that they withstand market fluctuations and will generate a much higher return than if you withdraw the money in a crisis situation.
But there are several advantages of them, as well as disadvantages that we will mention below.
Other advantages of long-term investments:
- The risk of loss is reduced– as you have seen, in the long term the chances of a positive return are very high, unlike short term investments.
- You will have much less taxes and commissions to pay– by investing in the long term you can benefit from the lowest possible taxes, especially if you don’t sell.
- It’s relatively easy to do, almost anyone can do it– you don’t need to be an expert in the field, just do the right research and build a portfolio to invest in companies you know,
- Avoid periods of anxiety and fear– if the market goes through a more difficult period wait and see what happens, you don’t need to panic, most likely in the long run everything will adjust.
- Your money has more time to multiply
- You will go through periods of crisis in the market much easier because you know that at some point it will recover, therefore the investment is not a lost one
Long-term investments have theirdisadvantages, below are some examples:
- You have to wait for a longer period of time to be able to enjoy the profit
- If at some point you need money and want to withdraw early, it is possible to make a loss. You have to keep in mind that some investments need 10-15 years to mature
- The value of the investment may decrease from time to time
The best long-term investments
When you decide to become an investor, the chosen strategy is very important, so it is advisable to inform yourself and find out what could be the best long-term investments for you.
Here is atop 7of the best long-term investments that can bring you a good return.
1. Stock indices.They cannot be bought as they are used to measure the performance of a particular group of stocks, but there are ways you can invest in them.
Index funds can be considered a good long-term investment because such a fund has shares in several companies, so if one company fails, the effect on your fund will be quite small.
Indices can be traded usingspot and futures contracts.
Spot trading refers to the fact that you can buy and sell an index at the current market rate (spot price), and if you opt for futures trading, you agree to trade an index at a specific price and date.
It is better to invest in stock indices, which reflect the market as a whole – Warren Buffett.
However, this investment method requires you to know which are the most representative indexes from the Bucharest Stock Exchange and how they work.
2. ETFs (Exchange Traded Funds)are similar to mutual funds and are traded on the stock market just like stocks. Through them, investors can invest in varied portfolios.
They have gained popularity in recent years because they are easy to trade and have the advantage of a diversified portfolio, just like mutual funds.
ETFs can be bought or sold through an authorized intermediary.
One of their advantages is that it allows you to trade assets such as commodities, thus gaining access to precious metals, oil or agriculture. In the past, they were quite difficult to trade.
Creating your own ETF portfolio and getting to know the legislation behind it can be a little intimidating at first, and this intensive 4-hour digital course can clear this up for you so that you can end up making big incomes in little time allocated
3. Forex market.The Forex market is a decentralized financial currency market where one currency is exchanged for another currency at a certain price. Investors can buy one currency at the same time as selling another currency with the objective of obtaining a gain or income.
Basically, Forex determines the exchange rates for each currency.
You can win a lot in a short time, but you can also lose just as much. If you don’t have the basic knowledge to trade in the Forex market you can lose a lot of money.
As you probably realized, the risks when choosing this type of investment are quite high.
4.Bondsare financial instruments that can be of several types: governmental (state securities), municipal and corporate. The lender (the investor) lends an amount of money to the borrower (the bond-issuing authority).
On the due date, the entity repays the amount due together with the corresponding interest. Therefore, you get the profit from the interest.
The two great advantages of bonds are the fact that they generate a constant income, and in the case of individuals, they are not taxed.
They are suitable for both novice and experienced investors who want to add variety to their portfolio.
The risk in the case of this type of investment is given by the interest rate which will vary.
5. Real estate investments. They are considered to be a very good form of long-term investing. You can invest in real estate assets such as buildings, land, commercial premises, etc.
Although they generally have a positive return, trades should be done with great care as this field has also experienced crashes. The most common and safest form is to buy and rent long term.
Advantages
- Property value increases with inflation
- You have secured a steady income
- You are sure that you have invested in a tangible asset
Disadvantages
- Purchase prices are high
- If you’re not careful, there’s a chance you won’t get your money back
- Additional investments are needed once a real estate asset is purchased
6. Equity Investments.You can invest long-term in shares, this being one of the most popular types of investments, but you must keep in mind that you need to inform yourself in advance about the companies from which you can buy shares and do a market research.
Advantages
- Higher earning potential than bonds
- Easy to sell and buy
- You can increase your profit quickly if you choose stocks that also pay dividends
Disadvantages
- The risk is higher than with bonds
- Time spent on market analysis and research
- The price can fluctuate a lot in a very short time
7. Mutual funds or mutual fundsi. A mutual fund collects money from several investors which it invests in stocks, bonds and other financial instruments with the aim of increasing the fund unit.
It is important to remember that they are aimed at the segment of investors who do not have the necessary time to research changes in the capital market, or do not have the necessary knowledge.
Thus, if you have no knowledge about stock market investments, you can allocate a certain amount to such an investment fund (or several) that will invest the money further.
At the same time, given that the fund has a wide range of products, you protect your investment and increase your growth potential. Therefore, due to the low risk, it is considered a very good form of long-term investment.
Other equally good options for long-term investing are: investments in art, gold/jewelry, pension funds orcryptocurrencies.
The latter have benefited from increased popularity lately, although they are quite volatile, speculative and investing in them can be quite intimidating.
However, if you want to invest in the long term, it is good to be well informed, to do a detailed analysis and to choose your strategy carefully.
Successful strategies for long-term investments
If you have decided to enter the world of investments, you must first of all take into account the fact that a risk will always exist.
But what you can do isto identify what your appetite for risk isand depending on that choose the form of investment that suits you.
For example, if you are more conservative you can choose to invest in government bonds where you have a guaranteed income. If, on the other hand, you feel that you are not intimidated by market fluctuations and are generally not afraid to take risks, you can try investing in the Forex market or the stock market.
Other things to keep in mind are:
- try to have as diversified a portfolio as possible. If certain stocks go down, it is possible that the rest of the investments will be in the red and thus you will not be in a loss
- invest in ETFs. They have become very popular in recent years and are suitable for beginners with low to medium risk
- copy stock investment patterns from experienced investors. Obviously you’ll be taking the same risk as them, but it’s an easy way if you don’t know how to start
- make passive investments. Mutual funds are a safe tool in this regard, and the risk is also relatively low
- invest constantly
- don’t invest in what you don’t know. The famous Warren Buffett has a famous phrase that should be taken into account, especially if you are just starting out: Invest for the long term in companies whose business model you understand.
The most famous instruments for long-term investments
As you have seen each type of investment has its advantages and disadvantages.
Among the most popular instruments for long-term investments are stocks, ETFs, bonds, the Forex market, indices, mutual funds, pension funds, but many also invest in real estate, cryptocurrencies, gold, art or oil.
Therefore, the choice of financial instruments depends on your own information, your appetite for risk and the amount of money you are ready to invest.
Remember that there is no risk-free long-term investment tool, you just need to identify the potential of each one.
Useful tips for long-term investments
The most important and valuable asset you have is not your house or car, but your mind.
Therefore, constantly learn, feed your brain with useful information and remember that every investment in yourself will return double.
If you decide that long-term investments are best for you, keep the following points in mind:
- before you start investing make sure you have some savings set aside, an emergency fund
- in the long term, the goal is not to sell the investments you have held for a short time, but to wait for them to mature to get the best return
- don’t let your emotions push you to act rashly, be patient. The market fluctuates and that’s normal
- start early and learn as you go. Don’t be intimidated that you don’t know all the concepts right from the start, educate yourself beforehand about what is most important to know at the beginning and then learn as you gain experience
- invest in yourself: read, learn about money, take courses that bring you valuable information
- when you invest in the long term, inform yourself in advance about the time in which the respective action will end up being profitable
In conclusion, there are no universally valid best long-term investments, but there are the best investments you can make, depending on the risks you are willing to take, and the information above can help you you make a decision about what you want to include in your portfolio.
The investments listed above are tools that you can use in the trading process, and it would be ideal to have as diversified a portfolio as possible.
The right time to invest is not as important as the ability to stay active and invest consistently in the investment market.
Thus, your investments will have the chance to grow in value over time, achieve positive results and achieve your long-term goals, without being affected by the moments when the market fluctuates.
