- Min. deposit: $0
- Stock trade fee: $0
- Sign up bonus: Get up to $1,000 in stock when you fund a new account within 30 days
Long term investments
Find out how long term investments work and how to use long term investments to build your wealth.
The length of time you hold on to an investment can impact your portfolio. Even small long term investments can grow into a healthy-sized portfolio over time. Here’s how to use long term investments to optimize your financial growth.
- Min. deposit: $0
- Stock trade fee: $0
- Sign up bonus: Get $100-$5,000 when you open an account with $5,000 to $1,000,000+
- Min. deposit: $0
- Stock trade fee: $0
- Sign up bonus: [FINDER EXCLUSIVE] Get a $25 bonus when you sign up and deposit $100
What is a long term investment?
There’s no official definition of a long term investment. However, most experts usually view an investment as “long term” when you intend to keep it for 5 years or more.
Short term investors, who tend to sell their investments in less than 5 years, can’t afford to invest their money in higher-risk investments. They may have to sell their investment when the market has slumped and end up suffering a loss.
In contrast, long term investors can afford to make somewhat risky investments, knowing that they can reap rewards over a long period of time. For them, long term growth is more important than shorter term slumps.
Different types of long term investments
- Savings accounts. These accounts are unlikely to keep pace with inflation due to historically low rates of return.
- Stocks. Stocks let you own a small This is where you own a small part of a company. Many larger companies pay dividends to shareholders so you could earn income as well as.
- Equity funds. These funds invest in a wide range of stocks, giving you diverse exposure to the market.
- Index funds. This is a type of equity fund that invests in all the stocks included in a particular index like the S&P 500.
- Bonds. These are sold by governments or corporations and are generally lower risk than stocks and funds.
- Property funds. These funds invest in real estate or in shares of property companies.
- Commodities funds. These funds invest in raw materials like gold, silver, precious metals and energy. It’s also possible to buy a fund that invests in companies that mine precious materials or energy resources.
- Investment property. Some long term investors choose to buy a property to rent out and earn income.
Can I make money with long term investments?
Long term investments can make more money than short term investments. This is for several reasons:
- Long term investors can often afford to pick higher risk investments, because they won’t need the money for a while. On average, high risk investments tend to grow more than low risk investments.
- Long term investors will be less affected by a stock market crash and can afford to wait until the market bounces back. Short term investors may need to access their investment right when the market has plunged.
- Long term investors can benefit from dollar cost averaging, a strategy where you invest gradually over time rather than all at once. Dollar cost averaging often leads to bigger returns in the long run as you are averaging out the purchase price of your investment. If you invest in one go you are likely to miss buying opportunities when the price of an investment has dropped.
- Long term investors have time to benefit from compounding, which is when your investment wealth snowballs over time. For example, if you invest $10,000 when you’re 20 and it grows at a rate of 5% annually (assuming interest compounds monthly), it’ll be worth $16,470 after 10 years, $27,126 after 20 years, $44,677 after 30 years and $73,584 after 40 years.
Should I choose high or low risk long term investments?
It’s a good idea to get independent financial advice when you’re setting up an investment portfolio. A financial adviser will take into account your personal circumstances and your risk tolerance before suggesting suitable investments.
In general, if you’re a long term investor then you may want to consider investing in some medium to high risk investments as part of your portfolio. That’s because you don’t need the money for a while so you have time to wait for the stock market or another investment to bounce back from a slump.
What are some strategies or options for long term investing
The strategies for long term investing depend on your financial circumstances and your attitude towards risk. Here are some popular strategies for long term investing:
- Passive investing. This focuses on investing in low cost, index-tracking funds.
- Growth investing. This approach focuses on businesses that are expected to grow quickly in the future. These companies might not yet be profitable or might only have small profits, but there is the potential to increase sales and enjoy high stock price growth.
- Value investing. This focuses on investing in companies that may be undervalued based on financials and future potential.
- Dividend investing. This approach prioritizes owning stocks that pay regular cash dividends, which can generate income and boost your portfolio if you reinvest the dividend income into more stocks.
Many long term investors opt for a mixture of strategies, combining passive investing with stocks geared towards growth, value and dividend investing.
Where can I find help with long term investments?
If you want help with finding long term investments then you can ask for advice from an independent financial adviser. They will review your financial circumstances and your attitude to risk before advising you on potential investments.
Where can I find long term investments?
There are many different options for long term investors. Here are some popular ways to invest:
- Join a workplace pension plan and make contributions. Most providers offer a choice of investment funds, so you can pick those suited for long term investments.
- Open an IRA. Make tax-deductible contributions, and pay income tax when you make withdrawals later in life.
- Open an investment account with an online investment platform. Many trading platforms offer portfolios of stocks as well as the opportunity to invest in individual stocks.
Pros and cons of long term investing
- Benefit from compounding, which can grow your money significantly over time.
- Benefit from dollar cost averaging, which involves investing gradually over many years. This reduces your risk that you’ll buy when the market is high and lose money on your investment.
- Can pick higher risk investments, because you’ll have the time to bounce back from slumps in value.
- Not suitable if you need to access your investment within 5 years.
- May lose value in the short term. Investments like stocks fluctuate significantly in value, so you risk losing money in the short run compared to keeping money in a savings account.
Open an investment account
Paid non-client promotion. Finder does not invest money with providers on this page. If a brand is a referral partner, we're paid when you click or tap through to, open an account with or provide your contact information to the provider. Partnerships are not a recommendation for you to invest with any one company. Learn more about how we make money.
Finder is not an adviser or brokerage service. Information on this page is for educational purposes only and not a recommendation to invest with any one company, trade specific stocks or fund specific investments. All editorial opinions are our own.
Investing as early as possible and holding on to your investments gives your money lots of time to grow in value. It also lets you pick slightly higher risk investments, which often grow over time. Speak to an independent financial adviser if you’re not sure whether long term investing is right for you.
Investing for the future
Frequently asked questions
More on investing
Here are the 10 best gold stocks based on year-to-date returns for December 2023.Read more…
Here’s what happens to your securities if your brokerage fails, and how your assets are protected by SIPC and FDIC.Read more…
Treasury Bills are fixed-income assets with maturities of less than one year. Here’s what to know before investing.Read more…
More guides on Finder
Are you prepared to invest if the market crashes?
How can you get your finances squared away in the event of a market crash?
Should You Raid Your 401(k)? Know the Pros and Cons
Learn all about what you should, and shouldn’t do, with your 401(k) retirement plan.
5 unexpected money moves that pay off
Make the most of what you have with these unconventional tips.
Getting yourself ready for retirement
A look into how much savings you need stashed away depending on your age.
6 alternative investing platforms to try
We bring you six alternative investing platforms worth trying to diversify your portfolio.
An investment platform that lets users buy and sell shares of fine art.
How to buy gold
Learn how to buy physical gold and compare gold bullion dealers.
How to invest in silver
Like gold, silver is a safe haven for investors against currencies. Learn 4 ways to shine up your portfolio, including potential risks.
How to invest in natural gas 2023
Learn how to invest in natural gas, including its historical performance as an investment, risks and benefits.
The Warren Buffett Series
The life story of one of the most successful investors in the world.
Ask an Expert