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Investing for the long-term means holding on to your investments of choice for years or even decades. What are the best long-term investments? The answer depends entirely on your goals and risk tolerance.
The Best Long-Term Investments in Stocks
Of all the long-term investments available, you’re probably most familiar with stocks. Plenty of investors choose individual stocks, but most people go for equity index funds and exchange-traded funds (ETFs).
Owning just one stock-based fund like an S&P 500 index fund provides your portfolio with exposure to hundreds of stocks. You get great diversification, which decreases the risk any one investment causes you to lose money. Other excellent long-term stock investments include growth funds and value funds.
Growth and Value Stock Funds
Growth funds are ETFs or mutual funds that invest in growth companies. They aim to provide investor returns through rapid price appreciation, rather than dividend income. Growth funds often invest in some of the largest companies by market capitalization, or the total dollar value of their outstanding share.
Value funds, meanwhile, look to invest in companies the market may have undervalued based on their fundamental finances. These tend to be more stable, well-established companies that have long histories of rewarding investors with dividends, even though their future growth may be much slower than growth companies.
The best growth funds tend to do best when interest rates are low and economies are heating up. Because of their solid financial fundamentals, value stocks, on the other hand, historically have excelled when the economy takes a turn and the easy money growth companies use to fuel their expansion dries up.
Stock funds can be either actively or passively managed and charge varying fees. You’ll find both types represented in growth and value funds. Growth and value funds are both also available as mutual funds or ETFs.
Investing in individual stocks is much riskier than investing in mutual funds or ETFs, since you’re placing your bets on only single companies instead of diversified funds. As you might expect, that means this option is only suited to those who have longer investment horizons and have stomachs of steel when it comes to risk.
Yes, you may wind up with greater returns than if you invest in diversified funds, but you’re also exposing yourself to comparably greater risk. While stock market indexes have never zeroed out, individual companies’ stocks certainly have.
Even if you’re willing to take on the risk of individual stocks, you’ll likely …….