There are plenty of different ways to invest, but the best long-term investments will vary depending on your risk tolerance, time horizon until retirement, and how much money you can set aside today. 

Whether you’re hoping to minimize risk with bonds or reach for the higher returns of riskier investments like stocks, we’ll help you decide on the right long-term investments for you.

To that end, we’ve given a non-scientific breakdown of the best long-term investments for every investor personality type, including:

• Target date funds
• Certificates of deposit (CDs) 
• Bond funds as ETFs or mutual funds
• Roth IRA
• Robo-advisor portfolio
• Cryptocurrency
• Stocks as ETFs or mutual funds  
• Stocks as index funds
• Small-cap stocks
• Real estate
• Growth stocks
• Dividend stocks

Ready to learn how to invest for the long term? Let’s get into it.

1. Target date funds

Best for: investors who want a single investment vehicle or otherwise wouldn’t rebalance their portfolio on their own 

Target date funds are a great long-term investment for those without the time or desire to manage their investments on their own. The assets in a target date fund are structured to grow according to your time frame, or “target date” for when you’ll retire, moving from more risky to more conservative over time. 

The risks of a target date fund follow the same risks as stock or bond funds. At the start of a target date fund, you’ll have a higher allocation toward riskier assets like stocks, meaning more volatility but also higher returns. As your retirement date draws near, your allocation shifts toward more conservative assets like bonds, which fluctuate less (and earn less) overall. 

2. Certificates of deposit (CDs)

Best for: safely growing your money for a specific purchase at a predetermined future date  

A certificate of deposit (CD) is a type of savings account that earns interest on a deposit for a fixed period of time. Contrary to a savings account, money invested in a CD can’t be touched for the designated term period — typically one, three, or five years. In exchange for leaving your money untouched for the agreed upon period, CDs offer a higher interest rate than a standard savings account. 

Generally, the longer your term length and the more you initially deposit, the higher interest you can earn. CDs are sold at different term lengths with different deposit requirements, and the terms offered can vary greatly depending on where you purchase one. Most online banks and credit unions offer more favorable terms than your standard brick-and-mortar bank, so be sure to shop around for the best rates before you commit. 

3. Bond funds as ETFs or mutual funds

Best for: risk-averse investors who want to diversify their portfolio

A bond fund as an exchange-traded fund (ETF) or mutual fund is a basket of bonds from various issuers. There are different types of bond funds to choose from based on different factors like the bond’s duration and the issuer. When a bond is issued, the investor is paid a certain amount of interest on an annual basis. When the bond term ends, the principal amount of the bond is repaid to the investor. 

Compared to stocks, bonds are a generally safer investment, especially when purchased in a fund versus individually. That’s because bond funds automatically diversify your investment across different bond types and issuers, lessening the blow to your portfolio if one of the bonds defaults.

The risk of bond funds comes down to the type of issuer. Government bonds issued by the federal government are typically the safest, as opposed to corporate bonds. Still, the overall risk is much less than that of a stock, making it one of the safer long-term investments. Just keep in mind that the security of bond funds comes at the expense of higher returns. 

4. Roth IRA

Best for: investors who expect to be in a higher tax bracket when they retire 

A Roth IRA is a tax-advantaged individual retirement account that lets you grow and withdraw your money tax-free. It isn’t an investment in and of itself, but an account that allows you to hold investments—Roth IRA funds can be invested just about anywhere you like, from stocks and bonds to mutual funds and ETFs. 

The main benefit of a Roth IRA is its tax advantages. Since they’re funded with after-tax dollars—meaning you pay income taxes now instead of once you withdraw in retirement—your withdrawals are made tax-free, as is the money you’ve earned on your investments over time. 

A strong Roth IRA portfolio might include diversification across an array of assets, and you can enjoy higher returns (at the cost of slightly higher risk) by allocating a portion toward stocks. Roth IRAs are one of the best long-term investments for young investors since you have time on your side—meaning you can afford a higher allocation toward riskier assets before shifting to less risky investments as you near retirement. 

5. Robo-advisors 

Best for: new investors who want a professionally managed portfolio

Similar to ETFs and index funds, a robo-advisor portfolio is a great long-term investing avenue if you’re after a more hands-off approach. Especially if you’re new to investing, all you have to do is deposit your funds into your account and let the robo-advisor do the rest. 

Robo-advisors often rely on passive index investing strategies to automatically invest on your behalf. They’re built to consider things like your personal goals, time horizon, and risk tolerance. You may  need to pay a management fee, which varies by robo-advisor, but they’re an overall more accessible path if you’re just getting started investing. 

Robo-advisors typically use a detailed questionnaire about your investing preferences to create a portfolio that aligns with your financial goals. Once you’ve specified how risky or conservative you’d like your portfolio to be, a robo-advisor lets you invest in an array of diversified stocks, bonds, and other securities according to your preferences. 

The risk and returns of a robo-advisor portfolio will depend on how you allocate your investments—a portfolio of mostly stock funds has the potential to yield more than a portfolio of safer investments like bonds or cash in a savings account. If you’re new to investing or don’t have a lot to invest at the moment, robo-advisors are an economical and dependable way to build wealth. 

6. Cryptocurrency

Best for: investors willing to stomach volatility and potentially capitalize on an emerging asset class 

Cryptocurrency is just a generic term for any virtual currency using blockchain technology, and it’s certainly more volatile compared to more traditional investments. That said, investors are increasingly adopting it as a long-term investment approach. 

Of all the types of cryptocurrencies available, Bitcoin leads the pack in terms of price index and market capitalization. With a total market value of $730 billion in January 2022 and its 40% share across the entire crypto market, Bitcoin likely holds the most promise for high long-term value. 

Bitcoin is also speculated to be a hedge against inflation—this is due to its limited supply, which will halt completely once 21 million bitcoins are in existence. This is in contrast to dollars, which can be printed in unlimited quantities. For this reason, Bitcoin can be reasonably expected to outpace inflation. 

If you’re going to invest in Bitcoin or any other type of crypto, it’s best to do so as a way to further diversify your portfolio rather than making it your sole investment. 

7. Stocks through  ETFs or mutual funds  

Best for: investors who want exposure to many stocks without having to research them themselves 

Stock funds such as ETFs or mutual funds are an attractive investment for those who don’t have the time or experience to analyze individual stocks. ETFs and mutual funds are both baskets of stocks. Purchasing this type of fund gives you exposure to an array of companies instead of just one. That means that if the performance of one company is down, it can be offset by the growth of another. 

The main difference between ETFs and mutual funds is that ETFs are passively managed, while mutual funds are actively managed by a professional. That means mutual funds come with higher fees since you’re paying someone to manage them. Both options require less effort than buying an individual stock, and both are excellent long-term investments thanks to their stable growth and inherent diversification. 

8. Stocks through index funds

Best for: investors who want a low-cost, hands-off investment and can stay invested for at least five years 

While a mutual fund may seek to outperform the market or a particular index, an index fund aims to provide returns equal to the index’s performance. If you want to invest long term, index funds are one of the best ways to do so. 

Like ETFs, they’re typically passively managed, meaning they come with lower fees and expenses. This makes them a more accessible avenue for investors who don’t have a lot of funds to invest in the beginning. 

Index funds are advantageous for young investors with a long time horizon since they allow you to lock in the returns of an overall index. The S&P 500, for example, has seen annual average returns of 10%–11% since 1926. And the younger you are, the better you’re positioned to allocate more of your portfolio toward stocks as index funds, potentially yielding even higher returns by the time you retire.  

9. Small-cap stocks

Best for: investors who can tolerate higher risk

Small-cap stocks are shares of small companies, and investors approach them as a way to capitalize on their potential for high growth in the future. Because smaller companies tend to have less capital and brand awareness than more established companies, small-cap stocks present more risk than other types of investments. 

Investing in a small-cap company requires thorough research of that company upfront, which will cost you time and effort. You’ll have to be able to stomach large fluctuations in price movements since prices can plummet during periods of market downturn. 

However, investors with a longer time horizon of at least a few years can expect to see those prices rebound with the market, given the company continues to grow as well. And if it does, the returns can be huge. Amazon is an example of a company that started as a small-cap company. Investors who capitalized on Amazon’s stocks early on are certainly reaping the rewards of those shares today.  

10. Real estate

Best for: Income-oriented investors

Real estate has historically been favored as one of the best long-term investments for a reason. With the potential to provide steady income over time and help you reach your long-term wealth goals, it’s an attractive investment for many.

Purchasing physical properties is one method for investing in real estate. While it requires a sizable amount of money upfront, it can be a highly lucrative source of income if you desire to manage your own properties. 

If you want to invest in the real estate market without having to manage your own property, consider real estate focused investment funds (REITs), like ETFs, to gain exposure to the real estate market. 

While all real estate investments may not see the same aggressive growth as high-growth stocks, many will appreciate in value over the long term. Real estate also has the benefit of being an asset class that performs independently from the stock market, so it is a smart way to diversify.

11. Growth stocks

Best for: investors who are decades away from retirement and don’t need short-term income 

Growth stocks are stocks whose earnings grow at a faster rate than the market average. That means they can come with the potential of high growth and high returns—technology companies often fall into this category. They rarely come with dividend payments, since a majority of the profits are reinvested into the business. 

Since growth stocks are typically in high demand, the price to purchase shares is higher, too. They’re purchased with the expectation that the stocks will earn substantial capital gains as a result of the company’s strong growth, which is inherently more risky than other types of investments—since they don’t pay dividends, the only hope for earning returns is by eventually selling your shares. If that growth doesn’t happen, you’ll have to sell at a loss.  

The key to successfully investing in growth stocks is thoroughly researching the company. You’ll need to be able to stomach higher levels of risk and prepare to hold these stocks for at least a few years, but ideally more. While growth stocks can be a gamble, the rewards can be substantial if you know what to look for. 

12. Dividend stocks

Best for: investors looking for immediate positive returns or retirees looking for stable cash flow

When it comes to the best long-term stock investments, dividend stocks are a solid option. While they don’t tend to grow as fast as growth stocks, they can be a source of sizable returns, especially if you’re investing for the long term. 

Dividend stocks are an attractive investment because they pay dividends, or a regular payment. And if you reinvest those dividends over time, you can utilize the benefit of compound returns and yield higher earnings than you initially started with.  

Dividend-paying stocks are usually tied to more established companies, making them a generally safer investment than growth stocks. Investors who buy and hold dividend-paying stocks don’t have to do much active management—you can simply set your initial strategy and regularly reinvest your returns to help your earnings grow over time. 

How to choose your best long-term investment

Any of the investments above can be valuable for building long-term wealth. That said, keep the following considerations in mind when selecting the right ones for you and determining your own investor personality type. 

1. Recognize your risk tolerance 

Part of being a successful investor means understanding the dynamics of risk and return. If you want higher returns, you’ll have to be willing to take on more risk. Determining your risk tolerance upfront will help guide your investment decisions for the long haul, as well as make it easier to ride things out when the market turns. 

2. Nail down your time horizon 

Knowing your time horizon is crucial to how you select your investments. Those with a shorter time horizon might need to allocate toward less risky investments like bonds. But if you have a longer time horizon or decades until retirement, you can lower your overall risk simply by committing to a long-term investment strategy. The longer you hold your investments, the more time you have to ride out periods of market downturn. 

3. Remember to diversify your investments

No investment is 100% fail-proof, which is why diversification is critical for any investor. When you diversify your portfolio across a mix of assets, you’re lowering the overall risk of any single investment. If one underperforms, it can be offset by the success of another investment in your portfolio. 

When it comes to choosing the best long-term investments for you, remember that the first step to any long-term commitment is, well, committing for the long haul. From there, identifying your target asset allocation based on your risk tolerance and time horizon will support you in making the right investment decisions.

FAQs about the best long-term investments 

Have more questions about the best long-term investments for you? We have answers. 

Why are long-term investments good? 

Long-term investments allow you to earn more over time compared to short-term investments. A long-term investment approach also eliminates the temptation to sell as soon as the market falls, since you can rest assured that the market (and your investments) will eventually rebound given a longer time horizon. 

Is now a good time to buy stocks for the long term?

Absolutely. Even if you see stock prices decline in the short term, the beauty of a long-term investment approach is that the market has historically rebounded in time—sometimes producing larger returns than if it hadn’t fallen at all. 

What is the safest investment with the highest return? 

Treasury bonds are virtually risk-free. Since they’re backed by the full faith and credit of the federal government, you can depend on them to see returns. However, they’ll never be as substantial as the returns on riskier investments like stocks.

The post 12 Best Long-Term Investments for Every Investor Personality in 2023 appeared first on Stash Learn.

Whatever your retirement dream is, retirement itself is a pretty straightforward concept. For most people, it’s simply the age when you stop working. 

But in order to stop working, you need income. And generally speaking, for most people, income in retirement will be limited to your savings, pension (if you have access to one), and Social Security.

Passive income could add to your income once you’ve retired. 

What is passive income? 

As its name suggests, passive income is generated without active, daily participation from you. It could be money you make by owning an apartment and collecting rent from your tenants. It could also be earnings or dividends from your investments in the stock market.  Or it could even include royalties you make from selling a book or acting in a commercial. 

What kinds of passive income can you earn in retirement?

Here are some ideas:

• Investing in stocks that pay out dividends, or distributions of a company’s earnings, is one way to earn money on the side. When you get a dividend, you get a certain amount of the profit the company distributes to its shareholders. That amount is determined by how many shares you have. Dividends are usually paid out in cash (occasionally additional shares of stock are issued). And these payments usually occur four times a year, at the end of every quarter. 
• Retirement accounts, such as Individual Retirement Account (IRA) and 401(k), can help you develop passive income through earnings and dividends from investments held inside the accounts. 
• In 2019, 65% of consumers owned a home in the United States. Renting out property to tenants or travelers can be a source of income. There are a few things to consider before you invest in property, however. Unless you can purchase the property with cash, you should have some savings as you’ll have to put a down payment on the house if you get a mortgage.  Typically, you can expect to pay around 20% of the purchase price of the house as a down payment. Then you’ll have to pay off the mortgage on the house, assuming you don’t plan to purchase it outright.
• Maybe you’ve been sitting on the next great novel. If you have a manuscript, you may want to attempt to get your book published as either an ebook or as a print edition. 
• You can earn royalties, or a percentage of sales, on a book. While the percentage of sales will depend on the book deal you have, you can estimate what you might earn from royalties. You can also earn extra income by appearing in commercials, or movies, or tv shows.

Retirement accounts and passive income

Anyone earning income may be able to put money into either a traditional or Roth individual retirement account (IRA). Saving money in an IRA could potentially help you develop passive income in retirement.

You can contribute up to $6,000 a year to any type of IRA. (That amount jumps to $7,000 if you are 50 and older.) And you can actually split your contribution between both types of account, as long as you don’t go beyond the annual contribution limits. 

With a traditional IRA, you’re taxed on money you withdraw from the account. However, you may not have to pay income tax on the money you contribute to a Traditional IRA and any earnings your investments generate aren’t taxed until you withdraw the money.

With a Roth IRA, taxes work the other way around. You pay tax on any income you contribute to the account. After that point you don’t have to pay any tax on that money or on any of its investment gains—You’ll be able to withdraw your contributions (not your earnings) at any time tax and penalty free as long as you stick to some basic rules. And there is no RMD age, meaning you don’t have to pull money out of the account, and earnings can continue to accumulate. 

You can find out more about IRAs here. 

Some things to keep in mind

Retirement can be challenging, and most people haven’t saved enough to make it a reality. In fact, nearly half of all people in the U.S. have saved less than $100,000 for retirement, according to reports. Many estimates say you may need more than $1 million in savings to live comfortably once you’ve stopped working.

Increasing monthly income with passive income, even by a little bit, could potentially help you in retirement.

The sooner you start saving for retirement, the more time can help you. And your retirement savings, which could include dividends and earnings, can be part of your passive income strategy.

The post Planning to Retire? Here’s How Passive Income Can Help appeared first on Stash Learn.