Investment options in the markets are important opportunities, but there are risks to be aware of (Getty)
Investing is one of the best ways to secure your financial future, but with the current high market valuations, focusing on long-term investing is more important than ever.
There are many ways to invest money, so you can choose the level of risk you are willing to take to reach your goal.
For example, you can make very safe choices such as “deposit certificate” CDs or take risks with potential returns through investing in areas such as stocks, mutual funds or ETFs.
What are the best long-term investments according to market data available in April 2022, according to the specialized service Bankrate?
1 – Growth stocks
These stocks promise high growth and high investment returns, which are often issued by technology sector companies, but can be risky because investors will often pay more for the stocks compared to the company’s earnings.
And if you are going to buy shares of this type, you will have to analyze the company carefully, and it can take a lot of time. Due to the volatility of a growing stock, you need to be willing to take a high risk or commit to holding the stock for at least 3 to 5 years.
The world’s largest companies, such as Alphabet and Amazon, have always had high growth, so your returns will probably be unlimited if you get the right company.
2 – Equity funds
An equity fund can be a great option. If you buy in a broad-based diversified fund, such as the S&P 500 Index Fund or the Nasdaq-100 Index Fund, you will get many high-growth stocks, as well as many other options. other shares. You would rather have a more diverse group of companies than when you had a few individual shares of a particular company.
An equity fund is an excellent choice for an investor who wants to be more aggressive in investing, but does not have the time or desire to make investing as a full-time hobby. By buying a stock fund, you will get a weighted average return from all the companies in the fund, so the fund will generally be less volatile than when you had a few stocks.
For example, if you buy into a fund based on the automotive industry, you may be more vulnerable to oil price fluctuations that, if they rise, are likely to affect many stocks in a sector fund of this type.
But if an equity fund is less risky than individual stocks, it can still be so volatile that it could lose as much as 30% or even win that percentage in some of its more robust years.
3 – Bond funds
Mutual funds include a variety of issuers, and are usually classified according to the type of mortgage, its duration, its risks, the issuer, whether it is a company, a municipality or a government, in addition to other factors.
You should know that when a company or government issues a mortgage, it agrees to pay the mortgage owner a certain amount of interest annually, and at the end of its term, the issuer is supposed to pay the principal amount of the mortgage along with its interest in exchange for its story from the buyer.
As the fund can contain hundreds of types of securities from different issuers, it diversifies its holdings and reduces the impact of any emergency securities on the entire portfolio.
While bonds may fluctuate, their fund remains relatively stable, although it may move in response to movements in the prevailing interest rate. State issuers are safer, while corporate issuers may have limited or very serious risks.
Usually the return on a bond or bond fund is much lower than it is in an equity fund, and can range from 4% to 5% annually, but at a lower rate on government bonds, and it is much less risky. .
4 – Dividend Shares
These are simply those stocks that pay regular cash dividends, but usually belong to older, more mature companies that need less cash. They are very popular among older investors because they produce regular income, grow better over time and are a popular form of REIT.
While dividend stocks tend to be less volatile than “growth stocks,” you should not assume that they will not rise and fall dramatically, especially if the stock market is entering a difficult period. And if the dividend-paying company does not earn enough to pay it off, it will reduce the payments, and thus its stock may fall as a result.
Some of the larger companies pay 2% or 3% annually, sometimes more. But more importantly, it can increase dividend payments by up to 8% or 10% annually for long periods.
5 – Value Shares
In light of the huge market boom over the past two years, valuations of many stocks have been stretched, and when that happens, many investors turn to their value as a way to be more defensive and potentially earn attractive returns.
Value stocks are those that are least expensive by certain valuation measures, such as the price-to-earnings ratio, which is a measure of how much investors pay for each dollar’s earnings.
These stocks could be an attractive option in 2022 because they tend to perform well when interest rates rise, especially since the US Federal Reserve (the Federal Reserve) has indicated that it could raise interest rates this year.
As the market declines, these stocks tend to decline by a smaller percentage, and as they rise, they may rise faster than the rest of the non-value stocks.
6 – “Target Date Funds”
This is a good option if you do not want to manage a portfolio yourself, and want to become more conservative as you get older, so that your portfolio becomes safer as you approach retirement age and need money. These funds are gradually shifting your investments from stronger stocks to more conservative bonds as the target date approaches.
These funds face as many risks as equity funds or bond funds because they are actually just a mixture of the two. If your target date extends over decades, your fund will have a higher equity ratio, which means it will initially be more volatile. But as the target date approaches, the fund will switch to bonds and fluctuate less frequently but earn less.
To avoid the risks, some financial advisers recommend buying these funds after 5 or 10 years from the time you plan to retire to obtain additional growth from the shares.
7 – Property
Property is a typical long-term investment, to take it requires a large amount of money as well as very high commissions. The returns often come from owning the property for a long time and rarely in just a few years. Real estate was the preferred long-term investment for Americans in 2021.
Real estate can be an attractive investment, in part because you can borrow money from the bank for the bulk of the investment and then repay it over time. This is common when interest rates are close to their lowest levels.
But one of the dangers of this trend is that when you borrow large sums, you put extra pressure on an investment that yields good results. But even if you buy real estate with all the cash, you will have a lot of money tied up in one asset, and this lack of diversification can lead to problems if something happens to the asset. And if you do not have a tenant, you will have to keep paying the mortgage and other maintenance costs out of your own pocket.
While the risks can be high, the rewards can be very high as well. And if you choose a good property and manage it well, you can earn your investment a few times if you are willing to keep the asset over time. If you pay off the mortgage on a property, you can enjoy greater stability and cash flow, which makes property leasing an attractive option, especially for older investors.
8 – Small-cap stocks
Investors’ interest in shares of relatively small companies can be attributed to the fact that they have the potential to grow rapidly, or to take advantage of emerging markets over time.
The retail giant “Amazon” was introduced with a share of this class, and then made the investors who held it really rich. Small-cap stocks are often high-growth, but not always.
As with high growth stocks, small stocks tend to be more risky because smaller companies are generally considered riskier as they have less financial resources, more difficult access to capital markets and less power in the markets as a brand, for example less month.
But well-run companies can do good for investors, especially if they can continue to grow and develop over time.
There’s a big plus to finding a successful small stock, and you can easily get 20% or more in annual returns if you can buy a real hidden gem like Amazon before anyone can see how successful it is in the end. is.
9 – Robo Advisor Portfolio
Bot advisors are a great alternative if you do not want to make a lot of investments on your own and prefer to leave everything to an experienced professional. With an automated advisor, you will simply deposit money into an automated account, and it will automatically invest it based on your goals, time horizon and risk tolerance.
All you have to do is fill out a few surveys first so that your robo-advisor understands what you need from the service, and then he takes over the whole process, selects low-cost funds and creates a portfolio for you.
As for the cost of the service, the robo-advisor charges an administration fee that often amounts to 0.25% annually, in addition to the cost of any investment funds included in the account. While funds charge a fee for the amount you invest in them, automated funds usually cost between 0.06% and 0.15%, or $ 6 to $ 15 for every $ 10,000 invested.
The risk of an automated advisor depends a lot on your investments, so if you buy a lot of equity funds because you run a high risk, you can expect more volatility than when buying bonds or keeping cash in a savings account.
10 – A Roth IRA
A Roth IRA may be the best retirement account in the United States. It allows you to save money after tax, grow your money tax-free over decades, and then withdraw it tax-free. In addition, you can transfer this money tax-free to your heirs.
This account is not an investment in every sense of the word, it is rather a fold around your account that gives it special tax and legal benefits. So, if you have an account with one of the best Roth IRA brokers, you can invest in almost anything that suits your needs.