Investing is a great way to enjoy a secure financial future. One can choose to invest for a short term or a long term. Short-term investments, which involve quickly getting in and out of the market, are excellent for making money to fulfill immediate needs. On the other hand, long-term investments are suitable for building generational wealth and meeting future goals, such as retirement savings. One can consider different avenues for long-term investing.
High-yield savings accounts
Those looking to invest for long-term financial growth can consider putting their money in high-yield savings accounts. These accounts have higher rates than traditional savings accounts, so money grows faster. They also have a lower risk since the money invested is insured by the Federal Deposit Insurance Corporation (up to $250,000), just like regular savings accounts.
When opening a high-yield savings account, one can opt for an online savings account or a cash management account. Cash management accounts are like hybrid accounts that combine the features of savings accounts and checking accounts; their interest rates are nearly the same as those of a savings account, but they are offered through brokerage firms like checking accounts.
Growth stocks
Growth stocks are another top investment option for long-term wealth generation. These stocks offer high returns because the companies they are linked to grow faster than the market average. If one finds the right company, the rewards can be without limits. That said, the profits are generally funneled back into the business, so investors rarely receive dividends.
Growth stocks are generally suitable for those with a higher risk tolerance because they are susceptible to rapid price fluctuations. Also, only investors who hold the stocks for longer (three to five years) benefit from the returns because growth stocks tend to be volatile. For these reasons, it is crucial to research well and choose the right growth stocks.
Corporate bonds
People seeking investments for future retirement planning can look into corporate bonds. Corporate bonds are basically loans given to a company. Investors earn interest on the money they lend and receive the principal after the bond’s maturity date. While corporate bonds help make money and diversify investments for long-term success, they are riskier. This is especially true for high-yield corporate bonds, also known as junk bonds. The risk/return profiles of high-yield corporate bonds are similar to those of stocks.
Most people avoid buying high-yield bonds because the higher yields often come from companies that will likely go out of business. Investing in such companies might still be worthwhile for people who want fixed-income security, provided they are willing to take on higher risks for bigger rewards. If not, one can invest in regular corporate bonds that are stable but offer lower returns. Simply put, an investor has to figure out the risk-return balance that will work well for them.
Stock funds
Stock funds are among the popular passive income investments for long-term wealth. They usually contain multiple stocks from a common theme or category. ETFs and mutual funds are usually offered as stock funds. These funds can be bought from any online broker for a specific fee, which is generally quite low. A big advantage of investing in stock funds is that they need less work. Investors do not have to spend time and resources analyzing individual stocks as the fund company already does this.
On the flip side, stock funds are riskier than individual stocks. One should consider this option only if they can take on more risks but do not want to get into stock investment full-time. In extreme years, the losses can go over 30%. Similarly, investors who opt for stock funds from diverse industries tend to get better returns in the long term, sometimes as high as 30%. But, overall, the returns are stable, especially if an investor has planned to invest for the long term, like three to five years.
Certificates of deposit
When looking for low-risk investments for steady long-term returns, certificates of deposit or CDs are worth considering. These federally insured savings accounts offer a fixed interest rate for a pre-defined period. In most cases, the interest rates do not fluctuate a lot. Those who want to save money they know will be needed at a certain date in the future can benefit from this investment avenue.
The usual term lengths of CDs are one year, three years, and five years. So, CDs are ideal for people seeking investment options where their hard-earned money can securely grow over a predetermined period.
Index funds
One can also consider index funds for long-term investing. An index fund is a type of mutual fund that holds stocks of a specific market index, such as the S&P 500 and Dow Jones Industrial Average. Here, the returns received depend on the performance of the underlying index. With low fund management fees and low volatility, these funds are suitable for any investor looking for long-term savings and cost-effectiveness.
