8 best long-term investments in high inflation
To invest or not to invest - that's a question for most investors in a high-inflation economic climate. Hence, you may consider the following long-term investments to navigate yourself in the bear markets so that you won't drain your energy too much on any ups and downs in the future.
1. Growth stocks
Growth stocks are one of the best long-term investment strategies since they promise high growth and high returns.
Growth stocks are companies that generate profits, revenues or cash flows at a speed above par thanks to their unique services and products, so growth stocks are often associated with technology companies.
For the returns, Growth stocks can be limitless if you find the right company as few are high-growth with future potential. On the flip side, these companies are overvalued. Also, plowing all the earnings into business and taking on a debit to generate more profits are their general practices, which investors might find risky.
2. Stock funds
Stock funds are funds that primarily invest in a basket of stocks and they are categorized based on a specific theme, such as the types of index or industry as well as the company size, country, region, etc. Stock funds are long-term investments because they are long-term growth through capital gains. The pros are investors don’t have to keep track of the market trends and the returns are more stable due to diversification. But, the cons are high management fees and overload choices, which may confuse investors.
3. Bond funds
Purchasing bond funds is also a good long-term investment since the issuer repays the principal, and the bond is redeemed after reaching the maturity date. Prior to that, the bondholders will receive interest from the issuers annually depending on the durations and riskinesses, issuers, who are mostly governments, banks, or corporate entities so bond funds are pretty safe and stable. And, bond funds are good for investors who want a diversified portfolio without too much analysis. Yet, bond funds’ values are easily affected by the prevailing interest rate.
4. Dividend stocks
Dividend stocks are stocks of companies that pay out their earnings, aka dividends, in the form of cash or as additional stock, to stakeholders regularly.
Holding dividend stocks is a long-term investment, especially for older investors, since they will receive a regular income should the dividend-paying company make growth. As these companies are well-established with strong earnings and a good track record, they also increase the amount of payout from time to time. However, if the companies don’t earn enough money for dividends, they will cut the payout.
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5. Value stocks
Investing in value stocks is another long-term investment as they are more likely to have higher long-term returns than their counterparts: growth stocks.
Value stocks are shares of a company that appears to trade at a lower price with cheaper valuation metrics such as a price-earnings ratio. Unlike growth stocks, value stocks are undervalued and they don't tend to grow faster with above-average valuations.
Simply put, investors need to wait some time for their rise, but sometimes the emergence may never happen if the market has a skeptical attitude towards them and it requires some time to alter the perceptions.
For their upsides, value stocks tend to perform better when interest rates are rising. And, even if the market falls, value stocks tend to fall less. In the meantime, value stocks can still rise when the market shows an upward trajectory,making them a great long-term investment choice.
6. Target-date funds
Target-date funds are considered to be an extremely long investment since these funds are with the structuring of mutual funds or exchange-traded funds (ETFs) to address an investor's capital needs at a specific time frame, sometimes the investors hold up to a decade, and that's how the name originates. Target-date funds are a combination of stock funds or bond funds and the riskiness will gradually die down if the fund is getting closer to the target date. On the contrary, the fund is more volatile If your target date is still decades away. Therefore, target-date funds are more frequently used for saving future expenses, such as a child's tuition fees. However, the disadvantage is that target-date funds are not flexible as people's needs may have changed over time.
7. Real estate
Buying a property is a long-term investment that needs a lot of commitment. In Hong Kong, as long as you have a stable job and your affordability is up to the bank's standards, you are eligible for borrowing money and paying it back later. Prior to it, you still need to fork out a considerable down payment to get started, not to mention the high commissions. That's why the downsides are the stress that you will endure and all of your savings are tied to one asset.
Moreover, this investment lacks diversification and liquidity. But the bright sides are that the high risks are parallel to the high rewards and you will see the returns after a while.
Also, it not only allows you to make passive income from rentals if you rent it out but also cash out to enhance your cash flow for greater financial flexibility.
Apart from physical property, you may also consider investing in Real Estate Investment Trust (REIT), which is easier to enter. REIT is a collective investment scheme that enables investors to receive recurrent income in the form of dividends through focused investment in properties including shopping malls, offices, hotels, and serviced apartments.
8. Robo-advisor portfolio
Robo-advisors vary from company to company, but generally, it is a software platform using algorithms to create and manage investment portfolio according to investors' preferences, be it aggressive or conservative.
With a robo-advisor, investors only need to deposit money into the robo account, and it will automatically invest based on your expectations, time horizons, and risk tolerances. Known for its low cost, the robo-advisor typically selects funds including the low-cost ETFs to assist you in building a broadly diversified investment portfolio that meets your long-term investment needs.
Apart from low costs, robo-advisors are another great alternative if you are not familiar with the market or you don't want to spend too much time studying finance from scratch, even if you are skeptical of the fund managers.
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Rule of Thumb!
Which investment is best for the long term?
- Stocks, mutual or ETF funds, real estate, bonds, gold, and beyond.
What are the 4 types of investments?
- Growth investments, defensive investments, cash, and fixed interest, each with distinct characteristics, risks, and benefits. While growth investments, such as shares and property, are more suitable for long-term investors.
Are 10 years considered a long term investment?
- Yes. A long-term investment is 10 years or more, while a short-term investment is less than three years.
Where should a beginner invest?
- For novices, it's advisable to start with a robo-advisor portfolio, target-date mutual fund, index funds, and ETFs since their thresholds are relatively low.