What are the best long-term investments?
When it comes to long-term investments, not all options are created equal. The right choice depends on your financial goals, risk tolerance, and investment horizon. In this post, we'll do something a little different from our normal, more conversational blogs and share a pros and cons evaluation of some of the best long-term investment options out there.
Stock Market
Individual Stocks
What are they?
A single stock - such as Apple - as opposed to a combination of stocks.
Pros: Potentially high returns; dividends can offer regular income.
Cons: Volatility can be high; requires deep understanding and ongoing monitoring.
Index Funds
What are they?
A type of mutual fund that aims to duplicate the performance of a financial market index.
Pros: Low fees; diversification reduces risk.
Cons: Returns can be modest and are subject to market trends.
Mutual Funds
What are they?
An investment programme funded by shareholders that trades in diversified holdings and is professionally managed.
Pros: Professional management; various risk and return profiles available.
Cons: Higher fees compared to index funds; potential for underperformance.
Real Estate
What is it?
Real estate is defined as property consisting of land or buildings.
Pros: Provides both capital growth and rental income; offers tax benefits.
Cons: Requires significant initial investment; illiquid; property management can be time-consuming.
Bonds
Government Bonds
What are they?
A government bond is a type of debt-based investment, where you loan money to a government in return for an agreed rate of interest.
Pros: Low risk; reliable income.
Cons: Lower returns compared to stocks; vulnerable to inflation.
Corporate Bonds
What are they?
A corporate bond is a type of debt security issued by a corporation and sold to investors.
Pros: Higher potential returns compared to government bonds.
Cons: Risk varies by issuer; potential for default.
Pension Plans
Defined Contribution
What is it?
A defined contribution plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis.
Pros: Tax relief on contributions; employer contributions.
Cons: Limited access before retirement age; returns are not guaranteed.
Defined Benefit
What is it?
Usually a workplace pension based on your salary and how long you've worked for your employer.
Pros: Guaranteed income in retirement.
Cons: Lack of control over investments; dependent on the financial health of the provider.
ISA (Individual Savings Account)
Cash ISA
What are they?
Cash ISAs are savings accounts that pay interest free of income tax.
Pros: Capital protection; tax-free interest.
Cons: Low interest rates; may not outpace inflation.
Stocks and Shares ISA
What are they?
A stocks & shares ISA allows you to invest in a wide range of shares, funds, investment trusts and bonds.
Pros: Tax-free gains and dividends; potential for high returns.
Cons: Subject to market volatility; no capital protection.
Fixed-Term Deposits
What are they?
A term deposit is a fixed-term investment that includes the deposit of money into an account at a financial institution.
Pros: Capital protection; guaranteed interest rates.
Cons: Low returns; no access to funds during the term without penalty.
Peer-to-Peer Lending
What is it?
Peer-to-Peer (P2P) lending lets people lend money to those who wish to borrow it without going through a bank.
Pros: Higher interest rates than traditional savings accounts.
Cons: Risk of borrower default; not protected by the Financial Services Compensation Scheme (FSCS).
Gold and Precious Metals
What are they?
Precious metals are rare, naturally occurring metallic chemical elements of high economic value.
Pros: Hedge against inflation and economic downturns.
Cons: No income through dividends or interest; storage and insurance costs.
Conclusion
The most suitable long-term investment for you depends on your individual circumstances, such as your financial goals, risk tolerance, and investment horizon. Diversification, by spreading your investments across different asset classes, can be an effective way to mitigate risk while capturing potential upside across various sectors.
Given the complexities of the investment world, consulting with a financial advisor can be a wise step for those looking to secure their long-term financial future. The professional guidance can help you tailor an investment strategy that aligns with your objectives, optimising the balance between risk and reward.
Approved by In Partnership FRN 192638 November 2023