5 Long Term Investments to Consider in 2020

For investing money, you need not be the lion of Wall Street; you can create wealth even if you’re a novice and have little knowledge about investment.

With half of 2020 gone in the rollercoaster ride, it’s essential than ever to start focusing on long-term investments. These long-term commitments help accumulate wealth for financial goals, such as retirement, or children’s education, etc.

Long term investments are more about accepting a certain amount of risk for higher gains. For example, you can buy a stock of a company and sell it after ten years, making it a long term investment. And, if you sell it within six months – it becomes a short term investment.

The risk with long-run investment is that the value can fall at any given time, but as you’re holding them for a long time, they have a chance to recover. That leaves the ball in your court. An investment may be down for five years, but it could bounce back to double or triple in the next ten years. The longer holding period helps you overcome the ups and downs of the market.

Long term investing is more about striking the right balance between return and risk. However, you will not earn a desirable profit when you put the money into a long-term investment that you sell in a short duration.

If you live in Canada and want to invest in long-term plans, search for ‘best trading platform Canada‘ or ‘best online brokers Canada’ for the right investment decision.

Here are the best long term investments to consider in 2020.

1. Growth Stocks

Stocks are the Ferraris of Wall Street because they promise high growth with a high rate of return. When you buy shares of a company, you represent ownership in the company. Usually, stock rises spectacularly in value over time, and many companies pay dividends, ensuring a steady income.

When dealing in stocks, you will come across two different types of stocks – growth stocks and high dividend stocks

Unlike high dividend stocks that pay out dividends, growth stocks plow all the profit back into the company, thereby rarely paying a dividend to the stockholder. However, growth stocks are risky, especially when the market is heading for recession as it can quickly lose value. The sudden popularity diminishes in a fraction of second. Due to the high risk, you need to hold the investment for at least 3-5 years.

Risk tolerance: High

Reason to invest:

• Investment in stable companies results in higher gains.
• It helps in diversifying the portfolio.
• It gives a high return for a long-term investment.

Risk associated:

• While growth stocks are a lucrative investment option, they are surrounded by a level of uncertainty and can crash in an extremely volatile market.
• When investing in growth stocks, you need to have a high-risk tolerance.

1. Exchange-traded funds (ETF)

ETF is a basket of products and assets like equity, commodity, or bonds that track an underlying index. Canadian S&P/TSX index fund is an example of an exchange-traded fund.

 Like stocks, it is marketable security, which is traded on the stock exchange. You can purchase it in the morning and sell it off before the market closure. ETFs are an attractive investment option due to low cost, tax efficiency, liquidity, and sector investing. Interestingly, as they are primarily managed by the industry experts and best in class fund managers, the risk exposure is low compared to stocks. When you invest in these funds, you know what you’re buying as these funds replicate the performance of an underlying asset.

Risk tolerance: Low

Reason to invest:

• Reduces long term investment risk
• Economic conditions which affect the smaller assets has no impact on the entire fund

Risk associated:

• Like stocks, ETFs are prone to market risks.
• You have to pay commission fees to the online brokers to facilitate the sale.
• It could be challenging to sell ETFs as they’re not traded as frequently as stocks.

1. Real estate investment trusts and crowdfunding

Another lucrative long term investment option is REIT and real estate crowdfunding.

REIT

They are companies that own and manage real estate assets such as hospitals, warehouses, apartments, office space, retail, etc. You invest in them the same way as you invest in stocks. You buy into the trust, which uses the money to build the property for profit. Like the stock market, you receive dividends for the investment. They are an attractive way to build wealth in the long run.

Crowdfunding

Real estate crowdfunding is a process of raising working capital by reaching out to a pool of investors through online crowdfunding platforms. As an investor, you invest funds through equity or debt in return for a proportional stake in the profit. One noteworthy feature of the investment is that it gives small investors like you, the opportunity to invest in high-income real estate projects.

Unlike the REIT, crowdfunding gives you the option to select the real estate investment.

Real estate crowdfunding is bringing a paradigm shift in long-term investments because the advantages outweigh the risks. It creates a winning situation for everyone because developer raises money without banks and traditional lenders, and investors make a lucrative return

Risk tolerance: Medium-high

Reason to invest:

• Real estate assets are not monitored or coordinated like the stock market resulting in higher returns.
• Many REITs are for a long time, which can generate a steady flow of income.
• No investment cap and you can start with $100.

Risk associated:

• These are illiquid investments, and you cannot sell for cash unless the real estate project completes.
• REITs are prone to market volatility.
• Higher interest rates tend to downgrade the share prices of the REITs.

1. Mutual funds

In the investment world, mutual funds are safe funds as you benefit from a stable income at low risk. These are a perfect investment vehicle for those who lack the expertise to invest in stocks. A mutual fund scheme collects money from investors like you and invests the money in different stocks collectively. It offers a diversified investment portfolio and provides a low-cost way to invest money.

Mutual fund shares are traded continuously, but the prices are adjusted at the end of the day.

When you’re planning to invest long-term, stock funds and bonds funds are the best mutual funds to consider.

Stock funds

These funds deal with companies trading on the stock market exchanges. It’s an excellent option for those who want aggressive results without spending too much time calculating the risk of different investment options. When you buy a stock fund, you get the weighted average return of all the companies in that fund. Furthermore, stock funds are less risky because if one company in the fund files for bankruptcy, you will not lose all your investment.

Bond funds

The bond funds primarily invest in securities offering a fixed income to the investor.

A bond is a safe investment, and it becomes safer as a part of a fund. A fund comprises of hundreds of bonds from different companies, which helps in diversification and reduces the risk of a bond default.

Risk tolerance: Low – medium

Reason to invest:

• A bond fund is relatively stable and is affected by the prevailing rate of interest.
• Government bonds are the safest investment options.
• Diversifies the portfolio.

Risk associated:

• While diversification helps in reducing the risk, it also dilutes the gains. Buying too many mutual funds for diversifying the portfolio reduces the profit.

1. Robo-adviser portfolio

If you’re a novice and want to leave all your investment decision to a professional – a Robo-adviser is an ideal choice. The Robo-advisor uses intelligent software to offer the services of an investment manager.

With a Robo-adviser, you deposit money in a Robo-account, and the adviser invests the money in different securities based on your goals, risk tolerance, and holding period. Through a questionnaire, the software determines your appetite for risk and spread your investment in ETFs and other low-cost funds.

Based on your investment goals, you can set the portfolio to be conservative or aggressive. It will help you build a low risk diversified investment portfolio that will help meet the long-term investment goals.

Risk tolerance: Low

Reason to invest:

• Builds a diversified portfolio and provides stable annual returns.
• Low commission cost.

Risk associated:

• As a computer program manages all the investments, they’re not 100% personalized. In fulfilling the long-term goals, it can overlook the short-term goals.

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