Investing your money is a tricky process and one that’s likely to have a significant impact on your life further down the line. Thus, it makes sense to spend a lot of time researching the types of long-term investment options available to you before deliberating what fits your financial goals best.
So, what’s the best long-term investment option? We’re going to have a closer look at what’s available on the market to ensure you have the information you need before making this pivotal decision.
Long-term investments are a great option if you have funds that you don’t need in the next few years. But, before we go any further, what is a long-term investment? It’s an investment whose assets are held for a period longer than one year, which you use to generate earnings outside of your regular income. If you’re curious about the intricacies of long-term investments and a more formal definition, we recommend you read this article from Wealth Pilgrim.
What’s the secret to ensuring your long-term investments gain value? You must leave the finances out of your control, so you should only invest in long-term schemes with funds you will not need in the short-to-medium term.
What are the different types of long-term investment options?
Once you’ve decided to invest your funds, you must grasp the distinctions between each of the long-term investment options, along with the benefits and risks tied to them. This context will prove vital in your decision-making process.
There are four primary long-term investment options, which are:
Investopedia defines stock as “...a share in the ownership of a company. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater.”
Stocks, also known as shares and equity, have an unusually high amount of risk involved. Why is that the case? The value of your stocks sees a direct impact from the state of the economy, a country’s political situation and the performance of the entity itself. Companies do not have an obligation to pay out dividends and set times, so investors will have to rely on their stocks appreciating over several years.
Despite the high risk involved, investing in the stock market is a highly lucrative investment option that has outperformed others for a significant amount of years. Investopedia reports that stocks have typically seen a return of 10-12%.
Buying bonds essentially means you’re lending your money to a company, corporation, municipality or government entity. It lets them get the cash they need while you make money on the interest incurred as they pay you back. If you would like an in-depth look, Money Week has a fantastic article going over all the fundamentals.
So, what are the risks involved in bonds? When compared to stocks, they’re relatively low, and their value rarely sees a fluctuation, making them one of the safest long-investments. If there is not that much volatility in the bond market like with stocks, what risks can you expect? They tend to relate to credit risks, interest rates and repayment problems.
The caveat with a low-risk investment option is that while you receive regular payouts, you will get a rather small and safe return on investment (ROI) in return. If you want to get rich, the odds of doing so through buying bonds are rare.
3. Cash Equivalents
Cash equivalent investment entails financial products such as certificates of deposit, money market funds and high-interest saving accounts. Cash Equivalents are a relatively safe long-term investment option since they generally have a stable rate of return. However, the rate of return is often low and is usually not an appropriate format for investments like retirement planning.
Investopedia offers a deep-dive into investing in cash equivalents and all the details.
The next option is property, and while it may not surprise you that as a real estate firm, we value this option as the most optimal one, we’ll explain why that’s the case.
4. Property: a good long-term investment
Is property a good long-term investment? The answer to that question is a resounding yes. The most popular (and wisest) options for investing in property are finding something in an up-and-coming area, tourism hotspot, popular area or an area near a university. Yet, the real estate market always runs the risk that the market crumbles and you see a fall in property values.
When it comes to a long-term property investment strategy, renting an apartment or flat on the Costa Blanca is an optimal area. What are the benefits of a long-term property investment on the Costa Blanca? First off, investing in foreign property has become a better investment after the three per cent stamp duty increase on second homes in the UK. When comparing other parts of Spain, the prices are more competitive along the hundreds of kilometres of coastline in the Alicante region, and you can often get a beautiful home for a lower price than in many European countries. The region also boasts an ideal climate all year round that makes it a popular destination for holiday makers.
Once you find your ideal investment property on the Costa Blanca, you can let it out for rent in the short-term, and with the steady stream of tourists, you can garner a regular monthly income (as well as making it a handy holiday home).
Once you retire, you can either sell the property (hopefully for a profit) and live off the lump sum, or you can move into the home and save on paying rent. Whatever you choose to do, it seems that property is still a good bet when sized up with the other options.
Long-term investments are a great way to prepare for the future and to ensure that you have enough put away for retirement. It’s best to seek the counsel of experienced and professional financial advisors before making any huge investment decisions.