If you’re looking for long term investment returns, relying on cash probably isn’t your best bet. And if you’re looking for long-term investment strategies that have a better chance of doing well over time, you need to take a look at other assets. We’re currently in a low interest-rate environment, and savers find themselves frustrated at the returns on their cash investments.
Here’s what you need to know about choosing the best long-term investments.
What Is Long-term Investing?
Long-term investing means focusing on the future growth of your portfolio. It involves strategies designed to increase your returns over time. Long-term investment strategies usually involve looking for more aggressive assets the farther you are from needing the money and then shifting to less-risky assets as you approach your goal.
In general, the target is that your long-term investment approach will help you capture higher returns by letting you grow your portfolio. It gives you time to recover from mistakes and market events. Employing long-term investment strategies can help you see better returns, even when interest rates are low.
Best Long-term Investment Strategies
As you consider some of the best long-term investments and alternatives to keeping your money in cash, here are some assets to consider:
1. Growth Stocks
As the name suggests, these are stocks expected to grow at a rapid pace. If you can find a good stock that is likely to take off, you can invest and capture the gains. You can put together your own portfolio of well-chosen growth stocks and potentially increase your portfolio returns. Ally Invest is a great broker to manage your stock portfolio.
The downside to this strategy is that you need to do a lot of research ahead of time. And you’re not guaranteed a return. While growth stocks are generally expected to rise in price, that’s not always the case.
Further Reading >> Growth vs. Value Investing.
2. Stock Funds
If you’re not interested in picking individual stocks, funds can be a way to build a long-term investment strategy that helps you build wealth. Through a brokerage like E*TRADE, you can invest in mutual funds or exchange-traded funds (ETFs) that offer different types of returns.
Some funds track stock indexes and can help you take advantage of the entire market. Other funds have goals like growth or income. With funds, you get instant diversity without having to worry about choosing individual “winners.”
3. Bond Funds
Want a less-risky asset but still want one of the best long-term investments that beat out cash in a low-interest environment? A bond fund could be the solution for you. There are bond funds that focus on high yields, so you get a better return than with some individual bonds. Additionally, if you’re more interested in preserving capital than in growth, you can consider bond funds that make use of inflation-protected Treasuries (TIPS).
4. Dividend Stocks
With dividend stocks, you receive regular payments based on how many shares you own. This can be a way to help you grow your portfolio at a faster pace, especially if you reinvest your dividends.
With dividend reinvestment, you use your payout to buy more shares. This increases your portfolio, and it also allows you to get a higher payout next time. When it comes to long-term investment strategies, dividend stocks and dividend reinvestment can be very effective.
It’s also worth noting that there are dividend stock funds. So if you don’t want to pick your own individual stocks, you can invest in a fund instead.
5. Real Estate
Another choice is to look into real estate investing. There are various ways to do this. One of the most popular is simply homeownership. However, be aware that real-estate appreciation may not be as large as you expect. And mortgage interest, insurance, property taxes, and upkeep on the property can eat into your returns. However, appreciation is still likely to provide better returns in a low-rate environment when you consider your home as a forced-savings tool.
And there are other ways to add real estate exposure to your portfolio too. If you buy rental properties, you get cash flow in a low-rate environment. Plus, you can later benefit from appreciation if you sell the property a couple of decades down the road.
If you don’t have the capital to buy a property or you don’t want to deal with it, you can consider real estate investment trusts (REITs). A REIT is a collection of real estate investments that you can buy into, similar to buying a fund. They are traded on the stock market, and they pay dividends. For some investors, this can be a solid long-term investment that adds some asset diversity to a portfolio. Here are some great REITs providers we trust:
6. Small-Cap Stocks
Small-cap stocks don’t have as large a market capitalization (total value) as larger companies. In some cases, small-cap stocks have a lot of growth potential. If you can get in while the shares are inexpensive and you choose the right investments, you can see huge gains over time. However, be careful about which stocks you invest in.
Some funds focus on small caps. So you don’t have to try to pick “winners” and can instead benefit from diversity in your portfolio.
7. Robo Advisor Portfolio
One of the best long-term investment strategies is to add money to a portfolio over time consistently. Robo advisors make this very easy. With a robo advisor, you answer a few questions about your timeline, goals, and risk tolerance. A smart algorithm then puts together an asset allocation that is likely to help you grow your wealth more effectively.
Most robo advisors use ETFs to construct portfolios. You’ll likely get a mix of stock and bond funds and perhaps some REITs. Your portfolio is usually automatically rebalanced when the asset allocation drifts away from the target.
With a robo advisor portfolio, you can set money aside each month. It is likely to grow over time at a better rate than what you’d get with your assets just sitting in a pile of cash.
8. IRA CD
If you still want cash in your portfolio but hope to get a better yield, an IRA CD could be one way to go. This is still keeping your money in cash. But the fact that you’re willing to lock it away for a long period of time often means a higher yield.
So, while you won’t get the same return as you’d see with stocks or bonds, you can still get something better than just letting it sit in a savings account. You probably don’t want to put all your money into an IRA CD. But it can be part of your cash allocation as part of a well-diversified portfolio.
How to Invest Long Term When Interest Rates Are Near Zero
The reality of the present situation is that cash won’t provide the returns you need to build wealth over time and retire successfully. But no matter the interest rate environment, many investors can potentially benefit from adding stocks and bonds to their portfolio in order to get the growth needed for an adequate nest egg.
Keep in mind that we often talk about investments in terms of returns, not interest rates. In the end, the return you can expect on assets like stocks, bonds, real estate, and other investments is dependent on market and economic conditions and other factors. However, if you’re looking for better returns on cash, you can look into long-term accounts like certificates of deposit (CDs). You can also look at bonds, including Treasury bonds and corporate bonds. While the returns might not be as high as with stocks, you’ll have a better idea from the start of the exact return.
Further reading >> Safe Investments With High Returns
Focus on the Long Term
Long-term investing is about recognizing that you need a portfolio that includes stocks and bonds — as well as cash — if you want to grow your wealth over time. With a properly allocated portfolio, you’re more likely to weather market crashes and recover from mistakes. Focus on the long term and build a nest egg that can provide for your needs in the future.