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Finding the Best Long-Term Investment Strategies

July 10, 2024

The old adage that everyone’s heard goes: “successful investing isn’t about timing the market but time in the market” – and that’s the essence of long-term investing. If you have extra savings and want to set them aside for a while, you're on the right path. Welcome to the world of investing.

Now come the big questions: where should you invest, how long should you leave it there, and which types of investments should you choose? If you’re considering setting your money aside for several years, longer-term investment strategies might be your best bet.

What is Long-Term Investment?

Long-term investing involves committing your funds for an extended period, generally accepted to be around five years or more. When it comes to superannuation, this can stretch to 10 or even 20+ years. This strategy allows your investment to grow over time and better withstand market volatility.

Growth in long-term investments can come from natural increases in value when stock markets rise and through the snowball effect of compounding. Compounding occurs when returns (dividends, interest, etc.) are reinvested, increasing your funds, which then generate additional earnings, which are also reinvested, and so on.

Not all investments grow over time – but generally, a well-diversified portfolio tends to appreciate if you give it enough time.

Which Are the Best Long-Term Investments?

The best long-term investments depend on several factors: how much money you have, your risk tolerance, your investment timeframe, and your personal knowledge or preferences regarding investment types. Typical long-term investments include shares and ETFs, property, managed funds, specialist assets, and term deposits.

Almost every successful investor incorporates some sort of diversification in their portfolio. This might include:

Diversification's power is that if one asset’s value decreases (e.g., a company’s shares drop), the overall value of your portfolio won’t necessarily suffer too much, especially if other asset values rise. Creating a diversified portfolio might seem daunting, but there are ways to achieve this without much effort, such as contributing to your super or buying ETFs. Both options can provide ready-made sources of diversification in a single transaction.

Which Shares Are Best to Buy for the Long Term?

The best shares to buy for the long term aren’t necessarily about specific types of shares but the range of shares in your portfolio. Specific shares may be suitable for a short-term strategy, but if you’re investing for the long haul, success may require a variety of stocks and can even include investing in different markets, both local and overseas.

Blue-chip shares are ones in solid, well-known, relatively secure companies. They might pay regular and reliable dividends but won’t necessarily grow in value as quickly as other shares. These stocks can provide stability in your portfolio. Meanwhile, shares in smaller, newer, or more adventurous companies (small-cap or medium-cap) often carry more risk but can have the potential to increase in value more rapidly. Having both types in your portfolio can give you a balance of stability and growth.

There’s also another type of share that can provide both stability and growth in one single stock: Exchange Traded Funds, or ETFs.

What Are ETFs?

An ETF is an asset you buy on a stock exchange, just like a share. However, instead of buying a unit of equity in just one company, ETFs allow you to invest in a whole range of companies. In Australia, there are now over 200 ASX-listed ETFs offered by local and international investment firms, covering a wide array of options.

For example, you can buy ETFs on the Australian Stock Exchange that focus on the top 20 Australian corporations, sustainable industries, global tech firms, the robotics sector, higher dividend-paying companies, emerging economies, and more. You can even buy ETFs that focus on property investment trusts, allowing you to own a share of real estate without taking out a mortgage.

Even a small number of just one type of ETF can provide the kind of diversity that would make a young Warren Buffett weep with joy – and thankfully, without having to be a billionaire.

ETFs differ from managed funds, another type of investment fund, because you can buy ETFs on the stock market. Managed funds tend to be more actively managed. Here’s more about the difference between stocks, managed funds, and ETFs.

Are ETFs Good for the Long Term?

ETFs can be advantageous in long-term investing because of the diversity they offer. They’re initially created by investment experts and are usually passively managed, meaning they’re only tweaked at the edges – often automatically – and therefore can have lower fees than actively managed funds that are more closely monitored and adjusted to take advantage of market opportunities.

For instance, an ETF that tracks Australia’s top ASX200 companies will only alter its portfolio when companies enter or fall out of the top 200 list. And because the ETF consists of shares in the top 200 corporations, every time the ASX200 goes up or down, so too does the value of that ETF.

As with all investing, ETF investing is not without its risks. There’s always a risk the value of your investment will fall, particularly if the ETF you choose is concentrated in a particular economy, sector, or trend. It also pays to be aware of other costs, such as transaction costs and buy/sell spreads.

How to Invest $10,000 for the Long Term

First things first, you need to decide what you mean by ‘long-term’. If this brings you close to retirement age, it might be wise to consider investing through voluntary contributions to your superannuation. This way, the experts do all the work for you, while you take advantage of tax benefits now.

If your end goal is sooner than retirement, investing via ETFs or managed funds may be a better option. You still get the diversification – and depending on what you pick, expert knowledge and management – but with the ability to access your funds at will.

The riskiest way to invest your $10,000 for the long term is to put it all into a single asset. The future is unpredictable, and even blue-chip companies can slide, potentially wiping out your investment if the company goes under.

When it comes to the future, nobody knows anything for sure, which is why investors often look to the past for clues about what could happen. Historically, markets tend to rise when given enough time, but not without some dramatic swings en route. Everyone has different risk appetites, and you’ll need to make sure you’re investing with yours in mind.

Adding More Long-Term Investments to Your Portfolio

Investing in ETFs, managed funds, or topping up your super can boost the diversification of your portfolio in just a few transactions.

Whether you have $1,000 or even $50,000 just sitting around, investing for the long term with a focus on diversity could be a move that your future self thanks you for.



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