Planning for the future requires investing wisely. Long-term investments for those who are patient can have an exceptional payoff. Whether you want to invest in growth or dividend stocks, mutual funds or real estate, there are a variety of best long-term investments you can choose from.
Here’s a look at how common asset classes compare in terms of average return, risk level and investor fit.
| Investment Type | Best For | Average Return | Risk Level |
|---|---|---|---|
| Growth stocks | Long-term growth | 8% to 12% | High |
| Dividend stocks | Passive income | 4% to 6% | Moderate |
| Value stocks | Income and capital generation | 7% to 10% | Moderate |
| ETFs | Low-cost diversification | 6% to 8% | Moderate |
| Mutual funds | Diversification and capital appreciation | 7% to 10% | Moderate |
| Target date funds | Set it and forget it savings | 5% to 8% | Moderate |
| Real estate | Tangible asset and income | 6% to 10% | Moderate |
| Roth IRA | Retirement savings | Varies | Low to moderate |
Best Long-Term Investments To Grow Wealth
Growth Stocks
Growth stocks are opportunities to invest in companies expected to increase earnings. These companies don’t tend to pay dividends but use their profits for expansion.
- Risk level: High — these stocks can be volatile
- Average return: Average rate of return may be from 7% to 12%.
- Why it’s good for long-term investors: Growth stocks favor the long-term, patient investor. They provide the best opportunity for capital appreciation. Growing companies reinvest most of their capital into expansion and can generate high compound returns over the long run.
Dividend Stocks
These companies redistribute part of their profits to shareholders as dividends. Receiving dividends provides a steady stream of income for shareholders. Companies that issue dividends include Coca-Cola, Johnson & Johnson and Procter & Gamble.
- Risk level: Moderate risk
- Average return: Return is 7% to 9%, but returns can be lower or higher depending on the market.
- Why it’s good for long-term investors: Dividend stocks provide a reliable stream of income, providing investors with a return even if stock prices are not going up. They are typically well-known “blue chip” investments with predictable streams of revenue.
Value Stocks
Generally, value stocks represent companies that are undervalued compared to their earnings, expenses and dividends or sales. Compared to the broader market, value stocks have lower price-to-earnings (P/E) ratios.
- Risk level: Moderate
- Average return: Value stocks have an average rate of return of 7% to 10% annually.
- Why it’s good for long-term investors: Value stocks have lower P/E ratios than growth stocks, making them a “value.” They often pay dividends and are more defensive in nature, meaning they tend to do better than the overall market during downturns. They also offer investors the opportunity to buy into good companies on the cheap.
Exchange-Traded Funds (ETFs)
An ETF is a combination of stocks, bonds and commodities all in one. ETFs can be bought and sold on the stock exchange. You are able to invest in a wide range of companies and can therefore spread out your risk.
- Risk level: Moderate
- Average return: The return on ETFs depends on the type. S&P 500 ETFs can have an annual return of 7% to 10%, while bond ETFs can earn up to 2% to 5%.
- Why it’s good for long-term investors: ETFs are typically passive investments that aim to replicate the returns of an index, like the S&P 500 or the Russell 2000. They offer transparency of investments and low costs.
Mutual Funds
A mutual fund’s key feature is its diversification. Investors buy a pool of assets that include stocks, bonds and securities. Mutual funds are typically managed by professionals.
- Risk level: Moderate
- Average return: Fund types impact the returns of mutual funds. Stock mutual funds can have a 7% to 10% return annually, while bond mutual funds can yield 3% to 5%.
- Why it’s good for long-term investors: Stock mutual funds are a popular way to diversify a portfolio. They consist of various stocks, and when investors buy shares of the fund, they gain access to smaller investments in each of the companies represented.
Target Date Funds
Target date funds are mutual funds that are managed with a specific exit date in mind. They are often used for retirement planning or college planning.
- Risk level: Moderate
- Average return: The average rate of return depends on the target date and can be from 5% to 8%.
- Why it’s good for long-term investors: You identify the target date fund by the year you plan to begin withdrawing the money. Over time, the investments gradually shift from equity-heavy to bond-heavy, becoming more conservative as you near retirement.
Real Estate
Investors can purchase properties — land, homes or commercial buildings — with the intent of generating profit. You can earn rental income or benefit from property appreciation.
- Risk level: Moderate
- Average return: The typical rate of return is 8% to 12% depending on the type of real estate investment.
- Why it’s good for long-term investors: Real estate offers the potential to generate rental income from tenants and capital appreciation from the increasing value of the property. Although location is a key factor in valuation, overall, real estate will always be in demand because the constantly increasing population will always need a place to live.
Roth IRA
A Roth IRA is not an investment per se, but it’s a type of investment account. It’s an individual retirement account into which you put after-tax money.
- Risk level: Low to moderate
- Average return: The rate of return depends on how aggressively the funds are invested. You could have a rate of return from 3% to 10%.
- Why it’s good for long-term investors: You can invest the money in almost anything you want, from cash to mutual funds to stocks and more. When you withdraw money in retirement, you don’t pay any taxes on the withdrawals, making a Roth IRA one of the very best accounts for long-term investments.
Best Low-Risk Long-Term Investments
Each of the above investments carries a moderate-to-high level of risk. If you’re looking for something more conservative, consider these three options.
Certificates of Deposit (CDs)
CDs are a low-risk investment that requires a minimum deposit of $500 or more. CD terms can range from three months to five years. Your investment will grow at a certain APY, and at maturity, you can either withdraw the funds or roll them over into a new CD.
Principal and interest are insured by the FDIC up to $250,000. The APYs are generally higher than those of Treasury securities.
U.S. Treasury Securities
Considered low risk, U.S. Treasury securities are government-backed. These securities range in maturity from a few weeks to 30 years.
Principal and interest are guaranteed by the U.S. government. Income is exempt from state taxation, giving the relatively lower yields a higher after-tax return, especially in high-tax states like California.
Savings Bonds
Savings bonds are essentially loans investors make to the U.S. government. In exchange for the security of government backing, the bonds pay a relatively low interest rate, along with the promise of the return of principal in typically 20 to 30 years.
The risk is low, and this investment is good for inflation protection.
Best Strategies for Long-Term Stock Investments
There is a strategic approach you can take to maximize your potential with long-term stock investments. Here are a few approaches:
- Diversify your portfolio: Try to have a mix of real estate, stocks, ETFs and a Roth IRA to maximize profit-potential and minimize risk.
- Use dollar-cost averaging: Automate your investments by regularly investing a fixed amount despite market conditions.
- Reinvest dividends: If you don’t need the cash, it is a good idea to reinvest your dividends to grow your funds.
- Don’t time the market: Stay invested in the market despite the market cycles.
- Review your allocation periodically: Don’t be afraid to change things up when reviewing your investments.
How To Choose the Right Long-Term Investment
How do you know which long-term investment is right for you? First, take a look at your financial goals and find out what works best in the short and long term. You may be planning to put kids in college or you may be closer to retirement — where you are in life will impact which long-term investment works best for you.
Here are some other tips:
- Decide your risk tolerance. If you are more risk-averse, consider CDs and bonds. If you want to invest more aggressively, consider real estate or stocks.
- Consider your timeline. If you’re younger, your timeline can be broader, allowing for risk and volatility. If you’re older, you may want to consider dialing back and choosing more conservative investments like bonds and securities.
- Don’t forget tax implications. When you sell some of these investments, they do have tax implications. Consult with a financial planner or tax attorney before you invest and find out how much it may cost you in the long run.
- Be consistent. Whichever investment you choose, try to stay consistent with how much money you invest.
Final Thoughts
You may want to ask these questions before you decide to pick the long-term investment best for you.
- Want long-term passive income? Try dividend stocks or ETFs.
- Looking for retirement growth? Consider a Roth IRA or target date funds.
- Prefer safer growth? Try Series I bonds or diversified mutual funds.
The best investments offer returns that you can hold for the long term. They can be a mix of safer choices, such as real estate or a retirement plan like a Roth IRA, where you may not see immediate returns, mixed with investments that offer higher returns but could be subject to more volatility.
Best Long-Term Investments FAQ
Still have questions about long-term investing? These answers can help you make smarter, more confident decisions with your money.- How much will I have if I invest $1,000 a month for 30 years?
- The amount you will receive depends on the type of investment. Hypothetically, if you have invested $1,000 a month for 30 years with a 6% return, you will likely receive $1 million.
- Is a 7% return realistic?
- Returns are not generally guaranteed, but it is realistic to expect a 7% annual return with a diversified stock portfolio.
- Where to invest $10,000 for the long term?
- You can invest in stocks, mutual funds or ETFs. It is a good idea to consider retirement accounts like an IRA or Roth IRA.
- How can I get a 10% return on investment?
- To consistently get a 10% return is difficult, but investing in growth stocks or ETFs may yield this result. Investing in real estate may also yield a 10% return. However, investors will have to deal with volatility.
Daria Uhlig and John Csiszar contributed to the reporting for this article.