An Investor's Guide to Long-Term Investing - SmartAsset (2024)

An Investor's Guide to Long-Term Investing - SmartAsset (1)

Long-term investing is often the best way to build wealth that stands the test of time. It’s how you plan for retirement and build a legacy to pass on to your children and grandchildren. Long-term investments require patience, but they have the potential to pay off with a much higher return than the quicker-fix choice of short-term investing. If you’re looking to figure out which long-term investment options are best for you, it may make sense to talk to a financial advisor. SmartAsset can help you find a financial advisor with our free financial advisor matching service.

What Is Long-Term Investing?

Long-term investing is the practice of buying and holding investments rather than buying with the express purpose of selling quickly. The exact definition of how long you must hold an investment for it to qualify as a long-term investment varies. Generally, it is between one and five years, though it can be much longer.

Investors hold short-term investments for a much shorter period of time. Short-term investments are about getting a quick cash-out but often come with higher risk or lower potential return. Long-term investments require more patience on your part. That patience is a trade-off for potentially lower risk and/or a higher possible return.

Common sense says that long-term investing is more conservative. Sometimes that’s true, but not always. You can invest in the stock market, generally considered one of the riskier possible investment choices, with the intention of holding the stocks for a long time. There is still a good amount of risk involved even though it’s technically a long-term investment if you hold the stocks for a longer period of time.

Types of Long-Term Investments

An Investor's Guide to Long-Term Investing - SmartAsset (2)

There are a number of long-term investment options to consider when building a portfolio. As always, remember that diversification is an important part of any investing strategy, so don’t think you need to commit to any one option or that you can’t also include some short-term investments to build a strategy that works for you.

  • Stocks: Buying stocks is one of the classic long-term investing strategies. When you’re buying stocks for a long-term strategy, you aren’t interested in selling them as soon as you see a rise in price. Instead, you want to find stocks that you believe will steadily increase in value over the next five to 10 years, or perhaps even longer. This requires you to stand pat when stock prices inevitably dip, understanding that the market is cyclical and you are, after all, in it for the long haul.
  • Bonds: There are various types of bonds you can purchase, including corporate bonds, municipal bonds and U.S. Treasuries. Pick bonds with maturity dates far in the future for long-term investing, and you’ll have a low-risk investment that will pay off down the line.
  • Mutual funds and exchange-traded funds (ETFs): Mutual funds and ETFs are collective investments. Managers invest money from a number of people into various places, such as stocks, bonds and other investments. This is a good long-term investment because it diversifies your money. You can hold mutual fund or ETF investments for a long time, but just like with stock investments, you’ll need to be willing to sit through market downturns.
  • Certificates of deposit (CDs): With CDs, you give money to a bank for a predetermined period of time. At the end of that time frame, you get your money back plus interest. The longer you leave the money in, the higher the interest rate. While shorter-term CDs are available, you can also get a CD with a term of up to 10 years. Just make sure you won’t need the money for the entire time, as there are severe penalties for early withdrawal.
  • Gold: Gold is a commodity that will likely retain its value, save for a full societal collapse. Investing in gold and holding it for a long period of time is a good choice for long-term investing.

How to Approach Long-Term Investing

An Investor's Guide to Long-Term Investing - SmartAsset (3)

It’s important to approach long-term investing with patience. You aren’t going to see the quick increases in portfolio value that you might with short-term investing.Also, it isn’t always going to be the most exciting type of investing. Keep your eye on long-term goals like retiring, paying for your child’s education and passing on some of your wealth to your family.

In addition to your financial goals, make sure you’re thinking about how much volatility you can stand. Make sure to choose an asset allocation that aligns with your risk tolerance as well as your time horizon.Typically, the longer you have to invest your money the more risk you can afford to take.

The Bottom Line

Investors hold long-term investments for a period of several years. Long-term investing is about buying and holding securities rather than selling at the first sign you could make some money. Long-term investing is about patience and waiting out bad cycles. You have to think about how an investment is likely to pay off down the road. There are a number of possible long-term investments you can make. Just think about your own financial situation before deciding which of them is right for you.

Investing Tips

  • Long-term investing should still be personal to you and your financial goals. You have to find the right long-term investments for your portfolio and a financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If your long-term investments pay off, you’ll likely owe a capital gains tax. Figure out how much you may owe with SmartAsset’scapital gains calculator.

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As an experienced financial expert with a deep understanding of long-term investing, it's evident that building wealth over time requires a strategic approach. The article touches upon key concepts related to long-term investing, emphasizing the significance of patience, diversification, and aligning investments with personal financial goals. Let me delve into the concepts mentioned in the article:

Long-Term Investing:

Long-term investing involves buying and holding investments rather than pursuing quick profits through short-term trading. The duration for an investment to qualify as long-term typically ranges between one and five years, though it can extend beyond.

Risk and Return:

The article rightly points out that long-term investments, while often considered more conservative, are not immune to risk. It highlights the importance of patience as a trade-off for potentially lower risk and a higher possible return.

Types of Long-Term Investments:

  1. Stocks:

    • Strategy: Buying stocks for the long term, anticipating steady value increase over 5 to 10 years or longer.
    • Approach: Holding stocks through market cycles, understanding the cyclical nature of the market.
  2. Bonds:

    • Types: Corporate bonds, municipal bonds, and U.S. Treasuries.
    • Strategy: Choosing bonds with distant maturity dates for low-risk, long-term investments.
  3. Mutual Funds and ETFs:

    • Collective Investments: Managed funds that diversify investments across stocks, bonds, and other assets.
    • Approach: Holding these investments for an extended period, enduring market downturns.
  4. Certificates of Deposit (CDs):

    • Time Frame: Fixed periods with predetermined interest rates.
    • Risk: Penalties for early withdrawal, making it suitable for those who can commit to the entire term.
  5. Gold:

    • Consideration: Gold as a commodity likely to retain value over the long term, even in societal upheavals.

Approach to Long-Term Investing:

  1. Patience:

    • Emphasizes the need for patience in long-term investing, acknowledging that quick portfolio value increases are unlikely.
  2. Financial Goals:

    • Encourages aligning investments with long-term financial goals like retirement, education, and wealth transfer.
  3. Volatility and Risk Tolerance:

    • Advises considering personal risk tolerance and time horizon when choosing asset allocation.

Bottom Line:

Long-term investing involves holding securities for several years, requiring investors to resist the temptation of quick gains. The article concludes by encouraging individuals to assess their financial situation before deciding on specific long-term investments.

Investing Tips:

  1. Personalization:

    • Highlights the personal nature of long-term investing and the importance of finding investments that align with individual financial goals.
  2. Financial Advisors:

    • Recommends seeking the assistance of a financial advisor to navigate long-term investment decisions, suggesting SmartAsset’s free tool for advisor matching.
  3. Capital Gains Tax:

    • Acknowledges the potential tax implications, advising readers to use SmartAsset’s capital gains calculator to estimate their tax liability.

In summary, the article provides a comprehensive overview of long-term investing, covering key strategies, types of investments, and important considerations for individuals looking to build wealth over an extended period.

An Investor's Guide to Long-Term Investing - SmartAsset (2024)


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