Securing your financial future isn’t just a matter of becoming “filthy rich.” This is especially because money always runs at the risk of being spent, wasted, or hugely affected by inflation. In fact, one might consider “just saving up” as a very amateur move towards securing one’s financial future. If we truly want to make the most of our savings, we’ve got to learn how to invest it in assets and pursuits that actually accrue long-term investment benefits.
Q4 2019 hedge fund letters, conferences and more
Must Have Long Term Investments
How exactly do we know which investments are worth the while, though? Or rather, which investments are definite must-haves? Thankfully, this article gives us a quick rundown of investments we can definitely give a shot for long-term benefits:
Stocks always remain the go-to long term investment
When we talk about long term investments, we usually think about stocks. And there’s a reason we do so - and that’s because they tend to be convenient, built to be long lasting, and easy to access. Long and short of it, stocks are considered “paper” investments, meaning you don’t need to be a business owner or a property manager to acquire them. Instead, having stock means you “own” part of a company that generates profits. Theoretically, if a company grows, so does its value as a business - meaning stocks you invest in a company also grow.
- Stocks are capable of rising in value, and they usually reap the most investments in the long term. That’s because stocks tend to pay dividends, meaning they’ll most likely provide you with money in the long run.
- Stocks are liquid assets, meaning you can sell and purchase stocks very easily in the market. This is why investors tend to “move” their stocks into profitable startups, and away from companies they think might be closing any time soon.
- Stocks don’t limit you to a particular company, and instead can be “scattered” across different businesses and companies. If you have the money, you can have a small percentage of ownership across both big and small companies, theoretically making you a flexible portfolio that can give you profits in the long run.
- We have what’s called growth stocks, which are investments to companies that we want to grow over time. These tend to make dramatic returns, like how Apple traded for less than USD 1 back in 1990, and now valued at USD 208 for every share.
- We also have high dividend stocks, which is the opposite of growth-oriented stocks. Companies issue these stocks that return a part of their profit to shareholders. These tend to pay higher compared to fixed-income, which makes them something other investors prefer.
Mutual Funds and Exchange Traded Funds lets you trade all at once
In speaking of trading, you can also opt to invest in a mutual fund or exchange traded fund (MF, or ETFs, respectively). Unlike stocks that have to be managed individually, you invest in an actual portfolio that’s investing in a lot of bonds and stocks. This lets you “tackle” multiple investments at once, all with a single transaction. The diverse nature of MFS and ETFs give them the kind of flexibility you might need for a portfolio, as they can track popular markets, be managed by professionals, and be focused on a particular industry of interest.
- You can opt for an ETF or an MF if you’re interested in investing but haven’t done a lot of reading to be super specific where you want to invest. Since different reliable entities manage MFs and ETFs, they’ll simply invest the money you’ve put in on your behalf.
- Thanks to the flexibility of MFs and ETFs, you can invest in the market in whatever way you prefer. You can focus on a particular industry, or just trade across a broad index. You simply need to find an MF or an ETF that tackles markets in the way you want, and invest your money there.
- MFs belong to the actively managed funds category, meaning the objective here is for the MF to outperform the marketing index. The goal of the MF is to choose stocks with the best prospects, be it based on value or based on revenue. If we are to compare this to a real life situation, it’s choosing to diet and lose weight for a specific goal - such as bodybuilding, a sport, or even a competition.
- ETFs belong to the passively managed funds category. This means investors in an ETF invest in the index, instead of specific securities. They tend to cost lower compared to MFs, which can make this a good choice for people interested in investing in funds. In the same analogy, it’s choosing to undergo a diet and lose weight solely for losing weight, and gain other benefits as “extra.”
Bonds can satisfy your need for an emergency investment
Another kind of long term investment you might want to consider are bonds, or money you “loan” to entities that they pay over time and with interest. In fact, it’s the interest rate that attracts investors into allocating money for bonds. There are many kinds of bonds, depending on the kind of group or individuals you’d want to give bonds to. However, unlike stocks that you can easily buy and sell, bonds tend to only start returning your investment after 20 or 30 years, which is a pretty long time to wait for your investments to be returned.
- What makes bonds attractive is its relatively high interest rate, meaning it can potentially yield high returns by the time the investment matures. Of course, the problem here is that you might be stuck with a particular interest rate, while others in your particular field will rise. That’s really a risk a lot of people look into bonds.
- However, one of the greatest advantages of bonds would be the price of the bond in itself, not necessarily the interest rate. Theoretically, market values of your bond can rise if the interest rates actually fall below the rate you’ve used to purchase your bond. And even if your interest rate stays the same, the fact that your bond will have fully matured after 20 to 30 years means you have funds to spend when you’re uncertain about the future in the same period.
- There are many kinds of bonds, depending on the entities that need them. Most common are municipal, government, and international bonds that local governments usually borrow for their many infrastructure projects. Another kind of bonds are corporate bonds, which companies borrow as capital or extra expenditure.
Retirement funds help secure your future
Of all the items in this list, this might be the one that can strike everyone as odd. After all, why even save for retirement, right? Unlike investments into things that people pay you back, a retirement fund is simply just money you invest in… which you’ll end up using in the long run. How can it be useful? Turns out, having a retirement fund and investing in it religiously can provide long-term benefits.
- Retirement funds give you advantages you don’t normally encounter in other investments. A retirement fund will help you avoid relying on Social Security, and will secure a retirement account that’s tax-deferred - meaning your taxes will get reduced in the long term. And the compounding effect of investing in this retirement fund can allow you to enjoy your retirement without being a burden to your family.
- If you live in a country with Social Security, this won’t completely replace your income from when you were still working. In fact, it’s only projected to replace about 40-percent of your average income - which might not be enough if you have medication and other things you’ll need in your daily life. And if you live in a country with no Social Security options, then you might be in trouble once you retire.
- The tax-deferred nature of retirement funds means you’ll pay less taxes to get the money from this account, meaning you reduce the taxes you have to pay. And the fact that you have funds prepared to be used in the long term means you won’t have as much trouble living comfortably in your golden years.
The Right Investments Take Planning, Time
Perhaps the most important lesson to take out of all of these items is that the best investments are really the ones that can serve the most benefits for you. It's important to remember that while all forms of investments have a potential to pay off in the long term, it helps to study the ones that can help us reap the most benefits. Hopefully, the items above have given you a diverse-enough set of options for investments you may want to consider trying, especially if you have the funds.
If you have other tips and tricks, especially in terms of investment options, you have for other readers, do feel free to share them in the comments!