There’s no doubt some investments can be effective small-scale money makers. However, smart investors tend to consider the bigger picture. When you adopt a long-term investment approach, you can draw from a more sustainable income source.
Nevertheless, it’s not necessarily an easy journey to embark upon. To pull it off effectively, you need to have a solid strategy in place. This includes identifying which investments will best suit your long-term goals.
Let’s take a look at the 5 best long-term investments at your disposal.
1. Roth IRA
A Roth IRA (individual retirement account) is a type of post-tax savings account. These self-directed IRAs give you more control over the types of assets you invest in than you’d find with most traditional savings accounts. Perhaps the biggest advantage of a Roth IRA is that you don’t pay tax on your withdrawals. This is because you make the investments using funds that have already been subjected to income tax.
Most brokers and banks offer Roth IRAs to the public. You must make your contribution to the fund in post-tax cash and there are limits to the amount you can save each year. As these limits can and do change, it’s best to check with the Internal Revenue Service (IRS) before investing.
Despite these limits, one of the reasons this is a good choice for long-term investment is the potential for compound interest. The earlier you can invest, the more of your accumulated growth will continue to be reinvested.
As with any investment, there are certain hazards involved. You need to be relatively certain the taxes you pay on your current income are less than those you’d pay for withdrawals from a different investment. If you keep your money in a Roth IRA for less than 5 years and need to withdraw before the age of 59 ½, you’re also likely to meet stiff taxes and penalties. As such, a Roth IRA is intended for the long game.
2. Growth Stocks
The growth stocks method revolves around investing in the stocks of companies that don’t pay out dividends. Instead, these businesses reinvest profits directly back into the company. The result is the value of the business grows, as does the price of the stocks. Investors make their money by buying at a low price and selling once it grows.
It’s a simple enough concept, but what makes it one of the best long-term investments? Over some time, putting money into a good selection of growth stocks can result in a positive cycle. In essence, the rising price of the stock results in more investors, which gives the company more capital to make improvements and grow. This, in turn, results in further growth of the stock price.
Trends in this sector often revolve around industry focuses. Technology has been a generally solid choice for many growth investors, as these companies tend to rise in value quickly. However, tech stock valuations have decreased significantly and unexpectedly as of late.
While they may still rise again in the future, this highlights the biggest risk for growth stocks. They’re very sensitive to the volatility of the market. These companies also don’t pay dividends, so the only way you can make money from them is if their value rises.
3. Dividend Stocks
Dividend stock investment involves buying stocks in companies that regularly pay dividends based on company profits. As such, there is potential to earn passive income that you can reinvest in the company or direct toward other avenues for your diverse portfolio. You can also benefit from modest company share price growth over time.
This tends to be most effective when investors focus their stock purchases on stable businesses. Companies with a consistent history of steady growth and dividend payouts can be good long-term investments. It’s important to focus on the payout ratio. This is the percentage of profits the company pays to shareholders. Lower dividend payout ratios tend to be more sustainable over a long period. This is because the ratio indicates that the business reinvests in the company’s growth while also paying shareholders.
The drawbacks of dividend stocks tend to be surrounding fewer opportunities for large gains. As the best companies for these stocks are well-established, there is a slower growth rate. What you gain in reliability, you tend to lose in large and immediate profits.
4. Real Estate
Real estate involves purchasing property as an investment. You can simply purchase a property portfolio and wait for the value to rise over time. You could also purchase cheaper properties, renovate them, and flip them. Buying rental properties — either in residential or commercial real estate — is also a solid long-term investment strategy.
This has often been considered one of the more sustainable forms of investment. You can build your portfolio over time directly using your real estate profits. It’s also practical to utilize cryptocurrency investments to buy property, with some brokerages specializing in trading homes for crypto. As such, reinvesting the profits from other forms of investment can make real estate a valuable part of a strong and diverse long-term portfolio.
There are potential pitfalls here to be aware of, however. Real estate requires significant up-front capital, with rental properties often subject to maintenance costs. Nevertheless, investment property owners can benefit from tax deductions. You also need to research the stability of the property market you’re entering. If the location you’re buying in sees an economic downturn, you may have an asset you not only lose money on but struggle to sell at all.
Cryptocurrency is a form of digital money that is decentralized and not backed by tangible assets. While most people are familiar with Bitcoin, there are a growing number of currencies available. These include Ethereum, Dogecoin, and Tether, providing investors with a thriving market for a diverse and dynamic long-term portfolio.
There are a variety of approaches you can take to investing in crypto. The most popular tends to be utilizing an online broker platform to purchase coins in much the same way you’d buy stocks. You can then allow them to mature over time and sell them when the price reaches a peak. However, you can also invest in cryptocurrency mining. Usually, this is done by purchasing hardware process mining calculations and transferring the profits to a crypto wallet.
Crypto trading has drawbacks as well as advantages. The most concerning of these drawbacks is the market’s reputation for volatility. Committing to a long-term investment means navigating various external factors that can affect prices. Tweets by Elon Musk have caused Bitcoin prices to plummet in the past. Government regulation has also resulted in significant losses for investors. However, a strategic and vigilant approach to crypto trading can make it a viable long-term investment.
While there are no guarantees in investment, there are a growing number of viable assets. With some research and a solid strategy, you can take advantage of some strong tools for your financial stability.