7 Long-term Investments to Consider Buying in 2020
It is hardly arguable that having investments is one of the best ways to prepare for the rainy day. The upheavals in the economy in the past months have shown that there is hardly any certainty in economics. Thus, saving and investing are the twin ways to prepare for the future. There are two broad categories of investment options available – long term and short term investments.
The key difference between long-term and short-term investment is time. For long term investments, the minimum number of years the investment is left untouched is 10 years, it can accumulate up to 40 years. Long-term investments are ideal for achieving goals that aren’t immediate. Targets such as paying for a child’s college education, buying a property, etc., could form the basis for a long-term investment.
Some investments are ideal for the long term, but if you are looking to make a quick buck, short term investments are appropriate for you. There are several passive income ideas you can opt for if you prefer short term investments. However, there is a general consensus that long-term investments trump investments in the short term. This is especially in terms of the appreciation of assets, rate of turnover, etc.
Below you will find 7 long-term investments you should consider buying in 2020.
Stock funds are ideal for investors who cannot afford to check up on their stocks all the time. It offers an aggressive investment option while requiring only a little attention from the investor. A stock fund also gives the investor access to a diversified portfolio. This means that the investor will have stocks in several companies instead of just one company. This spreads the risks that may come as a result of the volatility of stocks. Stock funds offer a safe option for investing.
You have to bear in mind that owning diversified stocks will not automatically eliminate risks. At best, it minimizes the risk. Not all of the companies will do well in any given year. For instance, it is possible to gain as much as 30% as returns from one company. On the other hand, you could also lose that much from another company. That said, the potentials for great returns are excellent, making stock funds an ideal long-term investment option.
Small-cap stocks are the stocks from relatively small companies. These companies have less access to capital, less power in the market, and even fewer resources. In all, these factors make them riskier than big companies.
However, small-cap stocks have a tendency to grow quickly. This depends, to a large extent, on the leadership of the small company. Insightful leaders can turn small-cap stocks into gold mines. It is not uncommon to find the value of a small-stock tripling within two years or more. This makes up for its volatility and higher risk threshold.
To minimize the risk associated with small-cap stocks, you can invest in index funds. This is especially if you are new to making such investments. Index funds are like the safety wheels in a bicycle. As you get more comfortable and adept at investing, you will have less need for them.
Bond funds provide a solid investment option for anyone saving for retirement. A bond fund is a mixture of funds from both the government and corporate sources.
The way a bond works, a company or the government issues the bonds. They pay some dividends to the bond owner for an agreed period. When the period elapses, the issuer – the company or government – repays the principal sum. This is known as the redemption of the bond funds.
Bond funds are important because of the role they play in maintaining the stability of a portfolio. Bond funds do not typically go up the way stocks do. Thus, when the value of stocks rises, bond funds don’t. However, their necessity becomes obvious when stocks fail. This is because the value of a bond actually rises when stock funds depreciate.
The returns on bond funds are usually less than that for a stock fund. This is because of the riskiness associated with the former. It is important to note that government issuers are less risky than corporate issuers of bond funds.
Dividend stocks are simply the stocks that offer a dividend on any stocks purchased. The dividend is paid annually and is fixed beforehand. Dividend stocks provide a regular, fixed income for any investor. Some companies pay as much as a 10% dividend to investors each year and may go higher in some cases. Furthermore, as the value of the stocks rise, the amount of dividend to be paid rises as well.
Dividend stocks do not fluctuate like growth stocks, although they can be affected when the stock market enters a rough patch. Companies that offer dividend stocks are usually those with a track record of performance. Their reputations work to their advantage, keeping the value of their stocks, and hence the dividend payable, stable.
Target-date funds are the typical long-term investments anyone can consider. To invest in target funds, you need to have quite a sizable sum of money that you wouldn’t be needing in the near future. This money is then used to purchase the funds, left for a long time, say 40 years, and withdrawn only on the target date. Target-date funds are also excellent for preparing for retirement.
Target-date funds include a mixture of bonds funds and some stock funds. They are ideal because they make the job of investing relatively hitch-free. With target-date funds, you do not have to spend time speculating about the rise or fall of the stock’s value. The target-date fund automatically balances the portfolio when necessary.
Target-date funds management might be a little more expensive than other index funds. However, on the whole, the fees are still less expensive than several actively managed accounts. The chief attraction for target funds is the fact that they grow over time with little or no monitoring from the investor.
Real estate is one of the best long-term investments you can engage in. It has a low barrier to entry. Hence, you do not need any specialized knowledge, such as you’d need for trading in stocks, for instance. Also, capital appreciation is much more guaranteed with real estate. There is also a constant stream of income if it is a rental property. Tax exemptions are also available for certain real estate investment trusts.
There are several ways to raise funds to finance a real estate investment. They include personal funds as well as mortgage financing and loans. If you are skeptical about putting your funds into financing a real estate project, you can engage in crowdfunding. Crowdfunding platforms are an excellent option for those seeking to pool their resources together to fund a real estate investment.
Investment in real estate does come with its peculiar challenges. For instance, real estate investment is capital-intensive. More so, tenants can be unpredictable. They can decide to withhold rent, and some can cause significant damages to your property. In all, these can lead to months of lost income. Thus, before you get serious about investing in real estate, you have to master it.
Start a side business
A side business is one way you can engage in something you love while making money in the long-term. A side business takes you away from the world of stocks and bonds. This is especially for people who do not have a palette for risks. If yours is a single-income family, having a supplemental income through a side business will be especially helpful. What is more, these businesses can keep yielding interest for a long time.
A side business has to have all the features of a long-term investment. This means that for the first few years, you will intend to build the business. It is in the long run that the benefits will start accruing. In this category, you will find business ideas, such as agriculture and small business startups. Just like crowdfunding is available for real estate investors, there are some for agriculture investors too. You can make use of the opportunity to pool resources with others and invest. Also, you can decide to invest in small startups that show promise. Early investments give you a stake in the business’s future success. However, for this, you have to be careful. Startups are wont to fail than succeed. In fact, more than 50% are likely to fail in their first year. Bear this in mind before you make any heavy commitments.
Before you begin to invest, you have to make sure that you consciously cultivate the right mindset. Discipline, patience, and diligence are some of the virtues you may have to work on. You have to understand that long-term investments take time to mature and yield returns. Focus on the milestone you’ve set instead of having to devise new investment strategies each year. Eventually, you will hit a home run and rake in the profits.