Michael Adams is an investing editor. He's researched, written about and practiced investing for nearly two decades. As a writer, Michael has covered everything from stocks to cryptocurrency and ETFs for many of the world's major financial publicatio.
Michael Adams Investing EditorMichael Adams is an investing editor. He's researched, written about and practiced investing for nearly two decades. As a writer, Michael has covered everything from stocks to cryptocurrency and ETFs for many of the world's major financial publicatio.
Written By Michael Adams Investing EditorMichael Adams is an investing editor. He's researched, written about and practiced investing for nearly two decades. As a writer, Michael has covered everything from stocks to cryptocurrency and ETFs for many of the world's major financial publicatio.
Michael Adams Investing EditorMichael Adams is an investing editor. He's researched, written about and practiced investing for nearly two decades. As a writer, Michael has covered everything from stocks to cryptocurrency and ETFs for many of the world's major financial publicatio.
Investing Editor Paul Katzeff Investing EditorPaul Katzeff is an award-winning journalist who has written four books about how to grow your 401(k) retirement nest egg and one about internet investing. He has worked as a senior reporter/writer at Investor's Business Daily, a correspondent for Mon.
Paul Katzeff Investing EditorPaul Katzeff is an award-winning journalist who has written four books about how to grow your 401(k) retirement nest egg and one about internet investing. He has worked as a senior reporter/writer at Investor's Business Daily, a correspondent for Mon.
Paul Katzeff Investing EditorPaul Katzeff is an award-winning journalist who has written four books about how to grow your 401(k) retirement nest egg and one about internet investing. He has worked as a senior reporter/writer at Investor's Business Daily, a correspondent for Mon.
Paul Katzeff Investing EditorPaul Katzeff is an award-winning journalist who has written four books about how to grow your 401(k) retirement nest egg and one about internet investing. He has worked as a senior reporter/writer at Investor's Business Daily, a correspondent for Mon.
Updated: Feb 1, 2024, 1:37am
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The best way to build wealth is to put your money to work in the market. But the seemingly unlimited range of available investment choices can be intimidating for regular folks wondering how to get started.
A great way to get ahead of the game is to pursue long-term investing. When you buy and hold assets for years—or even decades—you have time on your side.
To help new investors understand this approach, we list some of the best types of long-term investments available. Each comes with its own set of risks and potential returns. Our recommendations are a great starting point, but everyone needs to decide for themselves which long-term investments make sense given their own risk tolerance and financial goals.
Thanks to their strong historical performance, stocks are among the best long-term investments. A share of stock represents a small ownership stake in a company. If a company grows its revenue and earnings over the long term, the company’s stock price rises.
According to Robert Johnson, a professor of finance at Creighton University, every long-term investor should hold a diversified portfolio of stocks.
“The surest way to build true long-term wealth is to invest in the stock market,” Johnson says. In fact, the average annual return on large capitalization stocks since 1926 is approximately 10%.
“If these historical average returns hold in the future, an investor in large cap stocks would double their money in slightly over seven years and have 10 times their original investment in approximately 23 years,” says Johnson.
Stocks come in all shapes and sizes, but there are several categories of stocks that long-term investors should consider.
Growth stocks are companies that are expected to grow their revenues and earnings at higher rates than industry peers over time. They can be higher-risk investments than the typical stock, but they also come with more potential upside.
Amazon (AMZN), Nvidia (NVDA) and Tesla (TSLA) are three examples of large-cap growth stocks that have performed extremely well in the past decade.
Value stocks are companies whose shares are priced at a discount to their underlying value based on fundamental metrics, such as earnings, sales and book value per share. Think of them as stocks that are temporarily on sale.
Value stocks are considered safer, more stable investments than growth stocks, but they may not have as much long-term upside potential. Exxon Mobil (XOM), Johnson & Johnson (JNJ) and Verizon Communications (VZ) are three examples of popular value stocks.
Dividend stocks are companies that regularly distribute a portion of their earnings directly to investors in the form of cash or additional shares of stock. Dividend yield is calculated by dividing its annual per-share dividend payment by its share price.
AT&T (T), Walgreens Boots Alliance (WBA) and 3M (MMM) are three popular dividend stocks, featuring dividend yields greater than 5%.
Bonds are a type of fixed-income investment. When you buy bonds, you’re lending money to a government entity or a company for a set period of time. In exchange, you are paid a fixed rate of interest on your loan.
Doug Carey, founder and president of WealthTrace, says bonds can help balance out a stock-heavy portfolio. “Bonds are generally considered less risky than stocks and can provide stability to a portfolio,” Carey says.
Vanguard estimates U.S. bonds have historically generated an average annual return of about 5.5%.
When you hold onto a bond until it matures, you should get back the full value of your principal investment—or par value. However, up until maturity, the market value of a bond may rise above or below par value based on factors like the well-being of the bond issuer, market interest rates and overall economic conditions.
Long-term investors need to know about the three main types of bonds: corporate bonds, Treasuries and municipal bonds.
Corporate bonds are issued by companies. Investment-grade corporate bonds offer lower interest rates because their issuers have relatively strong credit ratings and a low risk of default.
High-yield bonds, also known as junk bonds, have higher yields because the companies issuing them have a higher estimated default rate, increasing the possibility that investors may not receive interest payments or the full par value of the bonds at maturation.
U.S. Treasury securities are bonds issued by the U.S. federal government and are considered to be the safest type of bond investments.
Treasury securities include short-term Treasury bills, medium-term Treasury notes and long-term Treasury bonds, as well as Treasury Inflation-Protected Securities (TIPS).
Municipal bonds are bonds issued by states, cities, counties, towns, villages or other local governments. Because municipal bonds are so unique, investors can face liquidity risks if they plan to sell their bonds before maturation.
Investment funds gather a pool of capital from many investors and buy a portfolio of investments, such as stocks, bonds or other securities.
Investment funds are a very good choice for long-term investors, since they are managed by professionals and provide easy diversification at a relatively low annual cost.
Mutual funds are a popular type of professionally managed investment fund that trades only once a day at the fund’s closing market price.
An index fund is a type of mutual fund that is designed to replicate the performance of a financial market index, such as the S&P 500. Index funds are passive funds that focus on keeping investor costs low rather than outperforming a benchmark.
Exchange-traded funds are similar to mutual funds, but they trade throughout the day during ordinary stock market hours. They also generally have lower investment minimums and management fees than mutual funds.
A commodity is a raw material used to produce other goods or services. Commodities are typically produced and sold in uniform quantities, making commodities produced from different sources essentially interchangeable.
Instead of buying commodities directly, professional investors trade commodity futures contracts. Regular investors should stick to investing in commodities funds.
“Investing in commodities like gold, silver, oil, or agricultural products can provide diversification and act as a hedge against inflation. However, commodities can be volatile and require careful consideration,” says Carey.
According to Carey, commodities are an important part of a diversified portfolio. Here are several of the most important categories of commodities:
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Investing EditorMichael Adams is an investing editor. He's researched, written about and practiced investing for nearly two decades. As a writer, Michael has covered everything from stocks to cryptocurrency and ETFs for many of the world's major financial publications, including Kiplinger, U.S. News and World Report, The Motley Fool and more. Michael holds a master’s degree in philosophy from The New School for Social Research and an additional master's degree in Asian classics from St. John’s College.
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