Investing with a long-term perspective has many benefits. If you're a UK investor, there are some consideration to choose the best long-term investments.
When it comes to investing, the term "long-term" can have different definitions depending on the type of asset in question. Generally, an asset is considered a long-term investment if it is held for more than one year. However, this holding period can vary for different types of assets. For example, stocks are often considered long-term investments if they are held for more than 12 months, while real estate assets might need to be held for five years or more to be considered long-term.
Investing for the long term has many advantages, and historical data supports the idea that certain assets tend to generate positive returns over a prolonged period. The adage about stock investing is that the key to success is time in the market, rather than trying to perfectly time the market.
Holding onto positions for an extended period allows your investment strategy to come to fruition. If you have spotted a trend and made an investment, there may be a lag before the rest of the market draws the same conclusions. By maintaining your investments for a long-term perspective, you provide enough time for your plan to succeed.
This raises the question of which assets are the best ones to consider for a long-term investment strategy. With so many options available, such as stocks, bonds, mutual funds, real estate, and more, it can be difficult to determine which assets are the most suitable for your specific investment goals and risk tolerance.
The Best Long-Term Investment in the UK
Investing for the long term has become easier and more affordable due to the intense competition among brokers. They not only compete on price, but they also offer a variety of innovative products designed to generate long-term returns and gain market share. This provides investors with a wealth of opportunities to build a diversified portfolio that aligns with their specific goals and objectives.
This list of the best long-term investments is specifically compiled by Justin Freeman from AskTraders to include a variety of assets that offer compelling reasons for UK investors:
- FTSE 100 ETF - Provides exposure to the top 100 companies listed on the London Stock Exchange, offering a well-diversified investment option.
- Anglo American Plc (LON: AAL) - A global mining company that offers the potential for long-term growth and income through dividends.
- Property Funds - Provides exposure to a diversified portfolio of properties, offering the potential for long-term capital growth and rental income.
- UK Dividend Stocks - Offers exposure to a portfolio of high-yielding dividend stocks, providing a steady income stream over the long term.
- Government Bonds - A low-risk investment option that offers a guaranteed rate of return over the life of the bond.
- Crypto CopyPortfolio - Provides exposure to a diversified portfolio of cryptocurrencies, offering the potential for high returns in a relatively new and rapidly growing asset class.
FTSE 100 ETF
The FTSE 100 is an index that tracks the performance of the largest 100 companies listed on the London Stock Exchange. The top firm in the index is Shell Plc (LON: SHEL), a leading oil and gas company, while the firm with the smallest market capitalization is Dechra Pharmaceuticals Plc (LON: DPH).
By investing in the FTSE 100, you are essentially investing in blue-chip stocks, which are well-established companies with proven track records and the financial stability to generate long-term profits.
If one of the firms in the index experiences a change of fortune, its market capitalization will likely decline, and it will eventually be removed from the index. This reorganization is managed by the fund manager, so investors don't have to take any action to minimize their losses. On the other hand, if a new, promising company qualifies, it will enter the FTSE 100 and become a part of your portfolio.
One of the platforms that provide the FTSE 100 ETF is eToro. This passive tracker fund is an economical investment option, with a low Total Expense Ratio (TER) of 0.07%. This means that for every £1,000 invested, the annual management fee would be a mere £0.70. This makes it an attractive option for long-term investors who are looking for an affordable way to diversify their portfolios.
Anglo American Plc (LON: AAL)
Investing in Anglo American, a mining company, brings in a higher risk-return aspect to a long-term investment strategy. Anglo-American is a multinational corporation that has a significant presence in various commodity markets such as platinum, diamonds, copper, coal, and iron.
The commodity market is known for its cyclical nature, with demand for commodities directly tied to the overall health of the global economy. This results in prices of commodities rising during an economic boom, as it takes time for new mines to become operational and meet the increased demand.
Stocks from the mining industry, including Anglo-American, appear poised to gain from the shift towards a more environmentally friendly global economy. The creation of new, greener technologies like electric vehicles will require an abundance of raw materials, potentially leading to a "commodities super-cycle."
These upswings in the commodity markets can persist for many years, and a considerable number of experts believe one is imminent since the last one occurred in the early 2000s. Hence, investing in Anglo-American stock is a great option for those seeking a higher risk-return approach in their long-term investment portfolio.
Property Funds
Investing in real estate has been a popular choice for long-term investors for many years. The reason for this is simple: the world's population is growing rapidly, and there is a limited supply of land. This means that the demand for real estate is likely to remain high, making it an attractive investment opportunity for those looking for long-term growth.
However, one of the challenges of investing in property is its illiquidity. Unlike stocks or bonds, it can be difficult to quickly sell a property and access your money. This makes it a better option for long-term investment rather than short-term speculation.
For those who want to invest in the real estate market without having to deal with the hassles of property management, a real estate ETF may be the right choice. The Real Estate Select Sector SPDR Fund ETF (XLRE) is one such option that provides exposure to a diverse range of companies in the real estate sector. This ETF invests in real estate management and development companies and REITs, excluding mortgage REITs.
The stocks held in such ETFs are those of large-cap blue-chip companies, which offer stability and reliability for long-term investors. With 34 different holdings, this ETF gives investors exposure to various areas of the property sector, reducing their exposure to any one specific market.
Investing in property through the Real Estate Select Sector ETF is a cost-effective option, as it eliminates the need for the high transaction and administrative expenses that come with buying the property directly. The ETF gains exposure to the real estate sector by purchasing the stocks of property companies, which reduces the overall cost with a TER of only 0.10%.
UK Dividend Stocks
Investing in companies that offer high dividends can be a relatively safe option. It is widely believed that high-yielding stocks provide a consistent and reliable source of long-term returns and can serve as a balance to riskier investments in your portfolio.
If you are looking to incorporate income into your portfolio, you can choose from a list of UK stocks that have high dividends. Another option is to purchase an ETF such as the iShares Core High Dividend ETF, which holds 75 financially stable stocks that pay dividends.
Additionally, reinvesting dividends can help compound your returns over time, leading to significant growth in your position. While high-yield stocks may be considered low-growth as they prioritize returning cash to investors instead of investing in new ventures, there is still potential for capital appreciation. This makes dividend stocks a viable option for long-term investors seeking a balance of steady income and potential for growth.
Government Bonds
Investing in government bonds is seen as a relatively low-risk option compared to stocks or corporate bonds. The returns are fixed and determined by the UK government as the issuer. The chance of default by the UK government is considered to be very low, which is the main potential risk.
Investing in bonds can provide returns that are higher than those from savings accounts and the predictability of bonds can help investors in planning. If you have investment goals for the future, such as one, two, or five years, you can easily estimate the returns from the bond portion of your portfolio.
It is a commonly accepted investment strategy that long-term investors should allocate a portion of their capital to bonds for added security and make room for riskier investments. The stability and security of bonds help with planning and provide a balanced portfolio.
One can invest in bonds either by purchasing them directly from the government Debt Management Office or by investing in an ETF fund.
Cryptocurrency
Investing in a smart, long-term financial plan doesn't have to be dull. It's all about balancing potential high returns with risk management by only investing a small portion of your capital into assets like cryptocurrency.
Cryptocurrencies are seen by some as a risky bubble, while others believe it's a game-changing technology that will shape the future of finance. Previous performance does not guarantee future results, but for those who have held onto their cryptocurrency investments over the long term, the returns have been substantial.
An alternative approach to investing in individual cryptocurrencies is to consider a portfolio that provides diversified exposure. Such a portfolio is designed to provide clients with access to a range of leading cryptocurrencies that have the potential to be adopted in various industries. By investing in a diversified portfolio, investors can potentially benefit from the growth of multiple cryptocurrencies and increase their chances of capturing the next big winner in the sector.
Things to Consider
To get the most out of long-term investing, it's important to set up your portfolio in a way that makes trading simple and cost-effective. The following steps can help ensure that you're getting the best results from your investments.
- Determining Investment Goals
The assets you choose to invest in will have different risk and return profiles, so it's important to know your risk tolerance and investment timeline. This will help you design a strategy that suits your goals and minimizes the chances of making emotional decisions.
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Having a Well-Defined Strategy
Regardless of the assets you invest in, it's important to have a clear plan for managing risk, including determining entry and exit prices. Keep in mind that all investments carry some level of risk, especially with cryptocurrencies.
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Selecting the Right Instrument
When holding assets for long-term investment, it's essential to review the terms and conditions to understand the associated costs. For example, certain instruments may have higher administrative costs or account inactivity fees, so it's essential to be aware of these before making a decision.
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Considering Tax-Efficient Investment Vehicles
Investing for the long term can provide tax benefits, so consider using investment vehicles such as pension funds, SIPPs, or ISAs, which offer preferential treatment. -
Monitoring Your Investment
Long-term investing is often hands-off, but it's important to monitor your investments and be prepared to reassess if unexpected events occur. Choosing a broker that offers news and price alerts can help you stay informed without spending a lot of time on market research.
Advantages and Disadvantages of Long-Term Investments
Long-term investing is usually associated with specific financial objectives, and the holding period can vary based on the individual's goals. For instance, saving and investing for retirement, which can be a multi-decade project, is a common long-term investment goal. However, some individuals may have shorter-term goals, such as saving for a once-in-a-lifetime trip or buying a new house, which might have a more limited time frame.
The key benefit of long-term investments is the greater likelihood of a profitable return, as shown by historical data indicating that stocks and bonds tend to perform better than savings accounts. However, the longer you hold an investment, the more volatile it can become and the higher the risk that it may return to its average value.
There are also some drawbacks to long-term investing. One of these is the opportunity cost of having your funds tied up for an extended period, as those funds could be used for other investment opportunities, such as short-term trading strategies, career development, or starting a business. Additionally, there is a risk that unexpected changes in your situation could force you to sell your investments at an inopportune time, potentially resulting in losses.
Final Thoughts
Having a clear understanding of your long-term financial goals and the required holding period can help guide the investment decision-making process and ensure that the chosen assets and strategy align with your long-term financial objectives.
When choosing assets for your portfolio, consider those that are likely to generate returns over more than one year. While each of the assets on the list has a solid reason for being included, relying on just one investment idea could be risky. Allocating your capital wisely and diversifying your holdings can help you achieve your long-term investment goals.
With that being said, a diversified portfolio of different assets could be the key to a successful long-term investment strategy. By spreading your capital across various markets, you increase your chances of making a profitable return and reduce your overall risk.
It's also important to choose a trustworthy broker to manage your investments. Working with a well-established broker with a good track record can give you peace of mind and help ensure your investment portfolio performs well over time. If you intend to follow the abovementioned recommendation, you should choose multi-asset brokers that offer a wide range of instrument choices.
5 Comments
Mar 14 2023
Do you think beginners with limited funds should explore the possibility of investing in cryptocurrencies, despite the perceived risks and volatility associated with them? It's interesting how cryptocurrencies are viewed differently - some see them as a risky bubble, while others believe they have the potential to reshape the future of finance. Of course, past performance doesn't guarantee future results, but it's hard to ignore the substantial returns that long-term cryptocurrency holders have experienced. How can beginners strike a balance between the allure of high returns and managing the risks involved? What factors should they consider before taking the plunge into cryptocurrency investments? And do you think it's wise for beginners to seek professional advice or educate themselves before venturing into this ever-evolving market?
Jun 7 2023
Hey there! I've been hearing a lot about government bonds as a safe investment choice with a guaranteed rate of return. I'm curious to know how they actually work. Can you break it down for me in a friendly and chit-chatty way? How do these government bonds manage to be such a secure option, and how is the guaranteed rate of return determined and maintained throughout the bond's lifespan? I'd love to get a better understanding of this fascinating investment opportunity!
Jun 11 2023
@Tristan: When you buy a government bond, you're basically lending money to the government. They issue these bonds to raise funds for various projects or to manage their finances. Now, why are they so secure? Well, governments are typically considered creditworthy, meaning they're unlikely to default on their debts. It's like trusting Superman to save the day!
The guaranteed rate of return is determined when the bond is issued. The government sets an interest rate, also known as the coupon rate, which they promise to pay you. Let's say you buy a bond with a 5% coupon rate, they'll pay you 5% of the bond's face value as interest annually.
Throughout the bond's lifespan, the guaranteed rate of return remains steady. As long as the government doesn't run into financial trouble, they'll make sure to pay you the agreed-upon interest. It's like having a friend who always keeps their promises!
Now, here's the deal. The value of government bonds can fluctuate in the market, especially if interest rates change. But don't worry, if you hold the bond until maturity, you'll get back the face value (the initial amount you invested) plus all the interest payments you received along the way.
Jun 26 2023
What factors should smaller capital traders consider when deciding between short-term and long-term investing strategies? Given their limited capital, which approach, short-term or long-term investing, may be more suitable for maximizing returns? How does the holding period differ between short-term and long-term investing, and what impact does it have on smaller capital traders? Considering risk management, what are the potential risks and challenges faced by smaller capital traders in both short-term and long-term investing, and how can they mitigate those risks? Based on historical data, which investment options have shown potential for profitable returns for smaller capital traders in either the short-term or long-term? Are there specific strategies or approaches that smaller capital traders can employ to enhance their chances of success in their chosen investment horizon? Given the volatility and potential return fluctuations, which investment horizon, short-term or long-term, may be more suitable for smaller capital traders looking to achieve specific financial goals within a limited timeframe?
Jul 3 2023
@Andrew: When it comes to investing, smaller capital traders need to think carefully about their limited funds and how to maximize returns. One important factor to consider is the investment horizon. Short-term investing involves holding investments for a shorter period, while long-term investing means holding onto investments for a more extended period.
With limited capital, smaller traders might be inclined to focus on short-term investing to take advantage of quick market fluctuations. This approach can potentially yield faster returns, but it also requires active monitoring and quick decision-making. On the other hand, long-term investing allows for a more patient approach, taking advantage of compounding returns over a longer period.
However, both strategies come with their own set of risks. Short-term investing is more susceptible to market volatility and short-term price swings, which can be challenging to navigate. Long-term investing, on the other hand, requires the discipline to stay invested during market downturns and the ability to withstand potential fluctuations.
To manage risks, smaller capital traders can diversify their portfolio, conduct thorough research, and implement risk management strategies such as setting stop-loss orders and regularly reviewing their investment strategies. It's also important to consider the specific investment options available and their historical performance.
While I can't provide specific investment advice, it's essential for smaller capital traders to educate themselves, seek professional guidance if needed, and align their investment choices with their financial goals. By understanding their risk tolerance, doing thorough research, and staying disciplined, smaller capital traders can enhance their chances of success regardless of their chosen investment horizon.