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December 17, 2019

Investment Choices for Long-Term Investors

Spending the time to build a portfolio of stocks and then actively managing it isn’t for everyone. Nor is simply leaving cash in a savings account where it’ll just gather dust or lose buying power due to inflation. A happy medium does exist, however. Investors who are in a position to take on long-term investments and who don’t have high liquidity needs are in luck. 

Here are 5 great long-term investment options. 

Real Estate

For centuries, real estate has been both a source and a store of value. For investors who can park their cash, real estate offers cash flow opportunities. Real estate typically sees lower volatility compared to other assets as well. 

Be it owning and renting a residential property or investing in a new condominium project, there are a lot of options available to investors of all sizes. 

Back in the day, real estate investors were restricted to brick and mortar, plus there were large capital requirements and insider know-how. Then came alternative investment platforms like DiversyFund’s. DiversyFund is open to the public and allows investors to co-own real estate assets for as little as $500. 

REITs are a great option for many investors–especially if you prefer to be hands-off. REITs will typically own a particular type of real estate, for example, senior living homes or apartment buildings. The rent they collect is distributed to their shareholders in the form of dividends.

Bonds

Bonds by definition are effectively long-term loans with a detailed and defined structure. Bonds are sold by governments, municipalities, and organizations to raise money. 

For the investors who buy them, the standard rule of thumb says that the higher the yield, the more risk involved. 

Investment-grade bonds like US Treasuries are a safe asset and tend to catch a strong bid when equities experience volatility. This flight to safety drives up bond prices which in turn drives down bond yields.

Just like with real estate, the average investor isn’t forced to purchase government bonds, bond specific ETFs trade on the stock market and so are very liquid. 

These bond ETFs can range from being a basket of high-grade corporate bonds like LQD to emerging market government bonds as seen with VWOB. The potential returns will all depend on your appetite for risk. 

Growth Stocks

Investing in individual stocks for the long-term is not for the faint of heart. It requires a lot of research, planning, and a little bit of faith. Investors interested in growth stocks are typically looking for young or small companies expecting above-average growth rates in the coming years. 

If you’re a big believer in a company’s product or service, a fan of their leadership, and willing to ride out any potential setbacks, growth stocks might be a good option. 

A company can do something that’s never been done before or its founders may have a history of building successful companies. Whatever may attract you to a growth stock, you must be prepared to leave your investment alone for the long-term. The focus is ultimately on capital appreciation. It might take years for the company to realize its potential, so it’s best to have low liquidity needs.

Dividend Stocks

For investors looking to maintain liquidity while also having a cash-flowing asset, dividend stocks are well worth considering. These are typically well-established companies rewarding shareholders for holding the stock by distributing cash to them. 

Dividend yields act similarly to bond yields in that the higher they are, the more risk is associated with the underlying company. Capital appreciation isn’t always the main goal when looking for good dividend stocks. However, it’s still a big factor given how long you’ll need to leave your capital in to collect the dividends. 

For example, tech giant IBM has a dividend yield of 4%, while Vermilion Energy offers a 14% yield but the latter’s shares are also down 40% since January. 

Interested investors aren’t forced to pick specific dividend-paying stocks, however. Dividend specific ETFs trade on the stock market and allow investors to hold a basket of them which diversifies the risk considerably.  

Index Fund ETFs

For investors looking to take a hands-off approach, index fund ETFs are a great choice. They track the broader market with a slight lean towards one industry or another, depending on the basket of stocks in the underlying index. 

Historically, the average annual return for the benchmark indices has been around 10%. And that’s the return investors are looking for when they park their cash in them. 

Some investors might want to take one position and hold that for the long-term. Others might want to continuously add to their position over time. We see the latter option with employees and their 401(k)s. 

Outside of ETFs for the traditional 3 index funds, (Nasdaq, DJIA and S&P 500) other popular options include the IWM ETF which tracks the Russell 2000 index and is made up of small-caps and the EEM ETF which tracks the MSCI Emerging Markets index. 

Conclusion

With cash accounts offering a mere 2%, it’s no wonder individuals are looking elsewhere for real growth potential. Alternatives are definitely a top choice to help combat lower returns and offset risk.

Those with any amount of starting capital can easily access real estate projects via DiversyFund. Those with more money to put to work might consider a dividend stock or an index fund in addition. If you’ve a high appetite for risk, then growth stocks will probably be the order of the day.