15 Types of Long Term Investments To Build Wealth

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When it comes to building wealth over the long term, many investors turn to the stock market.

But this isn’t your only investment option to choose from.

There are various investment options for you to choose from to reach your financial goals.

In this post, I will walk you through the best types of long term investments.

The key for you is to choose the ones that make the most sense for your investment strategy and risk tolerance.

15 Types Of Long Term Investments

Appropriate Use of Long Term Investments

types of long term investments

Before I get into talking about the various long term investing choices, you need to understand what exactly your time horizon is.

Below is a little chart for your reference:

investment time horizon

As you can see from the chart, if your time horizon is 5 years or less, you would be better off investing in short term investments.

If on the other hand your time horizon is longer than 5 years, then long term investments are where you should be investing.

The reason why is simple.

There is simply too much risk of losing money with a long term investment over the short term.

The stock market could enter into a correction, the economy could go into recession, or another geo-political event could have your investments fall in value.

As a result, you want to make sure you make investment decisions that make the most sense for your financial goals.

With that said, let’s get into the various long term investment strategies you can put your money in.

Knowing The Right Long Term Investing Choices For You

Once you know you are investing for the short term or long term, you still need to do one more thing.

You need to make sure you investing based on how much risk you are willing to accept.

If you fear losing money, then you should be investing with a larger bond allocation.

On the other hand, if you are comfortable with the movement of the market, you should consider either individual stocks or a stock fund, as this will provide you with the capital appreciation you desire.

It is critical that you build your investment portfolio based on your goals and level of risk.

Taking on too much or too little risk can mean disaster for your wealth.

#1. Stocks

Stocks are equities and when you own a share of stock, you own a piece of the company.

Over the long term, the average investor can expect to earn an annual rate of return of roughly 7-8% from stocks.

This is great for building long term wealth.

The problem that most investors have with stocks however, is that they allow their emotions to make decisions for them and end up buying and selling frequently.

This is not ideal because as I just mentioned, stocks are for the long term.

When you trade frequently, you are essentially turning them into a short term investment.

When you do this, you greatly increase the chance you lose money or earn not as high a return than you should.

In order to invest in stocks, you need to know that there are different asset classes of stocks.

Some are riskier investments compared to others, so it is important you do your research so you choose investments that make sense for you.

Stocks are broken down by market capitalization first, so you have large cap stocks and small cap stocks.

You also have mid cap stocks too, which fall in between large and small.

From there, stocks are broken down further.

Here is a brief overview of some of the investment options you have.

  • Growth Stocks. Growth stocks are companies that are growing revenues and because of this, the stock prices appreciate in value more rapidly.
  • Value Stocks. Value stocks are at the other end of the spectrum. They are slow growing, mature companies whose stock price doesn’t grow as quickly.
  • Dividend Stocks. These are stocks that pay dividends to shareholders. The companies that pay dividends believe that returning money to shareholders is a better use of revenue than reinvesting back into the business.

Overall, stocks are an attractive investment for most investors.

#2. Mutual Funds

pros and cons of mutual funds

Mutual funds are baskets of stocks or bonds, or a combination of the two.

As a result, you can invest in stock funds, bond funds, or a balanced fund, which is a percentage of both stock funds and bond funds.

The reason you invest in these as opposed to individual stocks is two-fold.

First, it is much more cost effective as a purchaser to own a mutual fund.

You can buy thousands of companies with a $100 investment through mutual fund, whereas that same $100 would only buy you a few shares of stock in one company.

Second, you are instantly diversified with mutual funds.

By owning multiple companies, you lower some of your risk as an investor.

In fact, having a diversified portfolio is a key ingredient of any financial plan.

Because of the benefits mutual funds provide, they are a very popular investment choice.

You can invest with very little money and at the same time remove some of the risk that comes from investing too heavily in one company.

Of course, there are downsides to mutual funds as well, but for the average investor, mutual funds are where most of your money should be invested.

#3. Exchange Traded Funds

Exchange traded funds or ETFs are very similar to mutual funds.

The main difference is that you can trade ETFs throughout the day, whereas with a mutual fund, you get the days closing price, regardless of when you buy or sell during the day.

Another benefit is the tax efficiency at which they operate at.

The investment fees you pay are traditionally the lowest in the industry, and they rarely pass capital gains to their investors.

Finally, most ETFs are index funds, meaning they are passively managed that track underlying indexes.

This means the investment fees you pay are lower than average, allowing more of your money to compound over time.

#4. Municipal Bonds

pros and cons of municipal bonds

Municipalities have all sorts of projects they need to undertake.

Many times they don’t have the money needed for these projects.

As such, they will issue bonds to raise the cash needed and in return, pay out interest to the owner of the bond.

Typically the term for municipal bonds runs anywhere from 10 years to 30 years in duration.

Because of this, they make for good long term investments.

They are not ideal as a short term investment because of the length of their duration.

For example, let’s say you own a bond that pays you 4% interest.

Five years later, new bonds are issued that pay 8% interest.

Obviously, you want to earn 8%, not 4%, but you are locked into the 4% that your bond is paying.

Your only options are to hold the bond or sell it.

If you sell the bond, you will get less for the bond because the demand for it will be low.

After all, who will pay full price for a bond that only earns 4% when they can get a bond that pays 8%?

Another benefit of muni bonds is the income you earn is usually tax free in the state which you reside in.

By keeping more after tax money, you are earning a higher than stated return on the bond.

#5. Treasury Bonds

Treasury bonds are bonds issued by the U.S. government.

Because the odds of the U.S. government defaulting on its bonds are low, the interest you earn from these bonds is also low.

As with municipal bonds from above, the term of U.S. Treasury bonds is rather long, up to 30 years, and as such, they make the most sense as a long term investment.

Of course, I cannot overlook one great benefit to these bonds, their tax treatment.

Since they are bonds issued by the federal government, you do not pay federal income tax on the interest you earn.

Depending on the state you live in, the interest may be taxable on your state tax return.

#6. Corporate Bonds

Corporate bonds are debt instruments a business uses to financial the need for more equipment, inventory, and more.

Because they carry more risk compared to government bonds, they pay a higher interest rate.

#7. Inflation Protected Securities (TIPS)

An inflation protected security or TIP, is also a bond.

However, instead of just paying a set rate of interest, you also earn an additional interest adjustment based on inflation.

Every 6 months, an inflation adjustment is made based on where inflation stands.

This feature allows for a reduction in the interest risk that you assume with owning bonds, which also lowers the risk of having the bond fall significantly in value.

Of course, since these are fixed income investments, don’t expect to be earning a large interest rate overall.

#8. Savings Bonds

savings bonds

Savings bonds are also long term bonds.

They used to be given by grandparents to grandchildren at Christmas.

However, nowadays, that isn’t very common.

The term for savings bonds is 30 years, but you can redeem them before the 30 years is up.

Depending on when you redeem them however, you may have to pay a penalty of 3 months interest.

#9. Real Estate

Real estate investments are a good choice for a few reasons.

First, the real estate market tends to be fairly stable.

This means most years you will see a positive return on your investment.

Also, depending on how you invest in real estate, you can turn your real estate investment trusts into a passive income source.

Of course, there are some drawbacks of real estate too.

The biggest is the cost.

To buy a house or apartment complex to rent out, you are going to need a serious amount of money for the down payment alone.

One unique way to get around this is with real estate crowdfunding.

Here you pool your money together with multiple investors to buy a property.

You then earn monthly income from the rent and the long term capital gain when you sell in line with your ownership percentage.

My favorite crowdfunding platform is Arrived Homes.

They make getting into rental real estate simple and fast.

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#10. Tax Sheltered Retirement Plans

When investing your money for the long term, a smart place to put your investments is in retirement plans.

A retirement account offers special tax benefits to you, helping you to build your wealth.

For example, a traditional IRA allows your money to grow tax deferred until you withdraw it during your retirement.

A Roth IRA on the other hand has your money grow tax free.

This means when you withdraw the money, you do not pay taxes on it.

For this reason, many financial advisors recommend the use of a Roth IRA when saving for retirement.

Here is a short list of the various types of retirement plans you can invest in.

  • 401k
  • 403b
  • Traditional IRA
  • Roth IRA
  • Solo 401k
  • SEP IRA
  • Simple IRA
  • TSP

Depending on your income, tax situation, and goals, you might use one or a combination of these accounts to save for retirement.

#11. Life Insurance

life insurance

 For the majority of people, life insurance is not an investment.

It is a way to lower the risk of you dying prematurely.

But for high net income wage earners, life insurance can make sense as an investment strategy.

This is because as your cash value builds up, you can take the money out as a loan, as well as other benefits.

You don’t have to repay this money, as you can opt for the amount you own to reduce your death benefit.

#12. Annuities

Annuities are another long term investing option for some investors.

While I am not a fan of most annuities, simply because of the high fees, a few are worth considering.

  • Fixed Indexed Annuity
  • Fixed Annuity
  • Deferred Income Annuity

All of these offer fixed interest rates and the value of your annuity cannot go down.

This makes them a possible option for an income stream while retired.

I would only consider these for people in retirement as well.

If you are younger, you are better off investing your money into a stock fund and a bond fund and riding out the potential stock market volatility over time.

As you near retirement, you can change your asset allocation to more bond funds to reduce risk.

#13. Alternative Investments

alternative investments

Alternative investments are investments outside of stocks, bonds and real estate.

They typically are made up of oil, gas and precious metals.

These types of investments can be very volatile over time.

Just look back to 2005-2007 as an example.

Every time a hurricane or tropical storm entered into the Gulf of Mexico, the price of a barrel of oil shot up a few dollars.

Understand that when I say oil and gas, I mean the actual commodity.

For companies such as Exxon or BP, they are large cap companies and you would own their stock.

Therefore, they would not be included above even though they are oil and gas companies.

#14. Certificates Of Deposit

Bank CDs are more for a short term investor, along with a high yield savings account.

But given the right economy, these could be great long term investments.

For example, as long as inflation is in check, if a bank CD or high yield savings account has interest rates above 4%, you can grow your wealth with very little risk.

For this investing strategy to work long term, you want to take out as long of a duration bank CD you can because you lock in the interest rate for the life of the investment.

With this said, I don’t suggest you lock up all your money, but a portion of it invested this way could be a smart move.

#15. Cryptocurrency

An article about long term investing wouldn’t be complete without including cryptocurrency.

This newer asset class tends to be very volatile, which is why you should not try to trade it in the short term.

For example, over the best few years, the value of Bitcoin has gone from $15,000 up to $60,000 and back down to $30,000.

Trying to time this asset to get the best purchase price would be a difficult task.

With that said, if you can handle riding out the market swings, investing a small portion of your money in cryptocurrency could be a smart move.

Final Thoughts

There are some great types of long term investments to consider investing your money in.

A long term investor has to find the asset allocation that balances the growth of their money while taking into account their risk tolerance.

If you can build a diversified portfolio that does this, stick with it as long as you can, as this will provide a nest egg to fully fund your financial future.

5 thoughts on “15 Types of Long Term Investments To Build Wealth”

  1. Great overview Jon.

    You are exactly right on emotions and stocks – they don’t mix at all and can create real problems for investors if they don’t check their emotions at the door when investing for the long term.

    1. Yup…if you look at why people fail at investing, the overwhelming number of times is because of emotion. You have to get them in check if you ever want to be successful with investing.

  2. Roadmap2Retire

    Great overview of all long term investments. It should be noted by investors that all investments arent good all the time and people should pick what they are comfortable and understand well. Each investment comes with its own risk/reward.

    cheers
    R2R

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