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# 7 best long-term investments for September 2024

By

Kate Stalter

CNN Underscored Money

Published 7:54 AM EDT, Mon July 29, 2024

Featured Image

William Potter/iStockphoto

Do you have a goal set for your financial future? Frequently, that goal is retirement, which means not only leaving your job but also staying retired for as long as four decades. Since you don’t want to scrimp and save during your golden years, it’s crucial to strategically select the right long-term investments for your unique situation.

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## What to invest in now for the long term

When investing for the long term, you’ll want to consider various liquid, investable asset classes, such as:

- Stocks: Stocks are known for their growth potential but can be volatile in the short term. For the long haul, it’s important to get the growth that stocks bring.
- Bonds: Bonds are debt securities issued by corporations, governments or municipalities. Investing in bonds is like lending money to an issuer in exchange for regular interest payments and then getting back your principal at maturity. Bonds are generally considered lower risk and typically don’t return as much as stocks over time.
- Real estate: Sure, you can own physical real estate, including your primary residence. But in your investment portfolio, you can own real estate investment trusts, or REITs. These investments hold diverse real estate asset categories, such as commercial, residential, industrial and more. REITs trade on the major exchanges and can help diversify the equity portion of your portfolio. Doesn’t that sound better than getting a 3 a.m. phone call because your rental property is flooded?
- Commodities: Commodities are physical goods like gold, oil and agricultural products. Investing in commodities can provide portfolio diversification, as these investments offer returns frequently uncorrelated with traditional stocks and bonds. Commodities may also provide a hedge against inflation, although their prices can be volatile.

In order to evaluate the best long-term investments, we took a comprehensive approach that considered risk tolerance, goals, asset allocation and the mix of stocks, bonds and other assets, such as real estate and commodities. We also considered tax implications and the benefits of using tax-advantaged accounts, such as a Roth IRA, as well as investment fees, incorporating the low-cost benefits of a robo-advisor.

### 1. Long-term investing with growth stocks

Growth stocks as an asset class offer the potential for higher returns, as their earnings tend to rise rapidly. These stocks often hail from the technology sector as well as consumer discretionary, health care and communications services.

However, the tradeoff for a higher return is higher risk. Growth stock prices are often pegged to future performance, making them more susceptible to market volatility, higher interest rates and economic downturns.

While it may sound terrific to only invest in growth stocks, that’s generally not a great idea given their volatility. In 2022, for instance, quintessential growth sectors like information technology, consumer discretionary and communication services fell out of favor and were among the worst performers.

In order to mitigate the risk that comes with growth stocks, diversification with other stock sectors, in addition to bonds and other alternatives, is crucial.

If you choose to use growth stocks to build your long-term nest egg, consider the following factors:

- Higher potential returns: Compared to value stocks or dividend-paying stocks, growth stocks generally offer greater return potential. After all, the expectation is that the companies in this sector should experience hefty earnings and revenue growth, which in turn should drive up their stock prices.
- Capitalizing on innovation: You’ll often find growth companies in innovative industries like technology, health care or e-commerce. To capitalize on breakthrough technologies and trends that can lead to big gains over time, consider investing in these sectors.
- Long-term focus: Because growth stocks are often volatile over short-term time horizons, investors must have the patience to stay invested for the long term. Look at the long-term charts of stocks like Apple (AAPL), Amazon (AMZN) or Tesla (TSLA) going back to their early days as public companies. You’ll see the returns that patient investors received.
- Diversification: Including growth stocks in your portfolio can provide diversification benefits. They often have low correlations with value stocks or other asset classes, which can help balance your return, while also reducing overall portfolio risk.

Pros

- Potential for higher returns over time
- Mutual funds and ETFs can provide diversified exposure to growth stocks

Cons

- With higher return potential comes greater risk
- Individual growth stocks may experience significant volatility

### 2. Bonds for long-term investing

Bonds are a key component of a well-constructed, long-term portfolio. They dampen the volatility of stocks and generate income, which can help offset downturns in the stock market over the long term.

You might have heard that bonds are good for risk-averse investors, and most investors should hold some bonds as a way of mitigating risk, even though they won’t generate the kind of return most people need for retirement.

Keep in mind that not all bonds are the same. Bonds are loans made by investors to governments or corporations, and they come in various types, each with their own pros and cons.

- Corporate bonds: These are issued by companies to finance operations, expansions or other financial needs. Corporate bonds frequently pay higher yields than government bonds, but they’re also riskier, as companies can default on payments.
- Government bonds: Governments issue bonds to raise funds for public projects. They are considered low-risk since governments rarely default. However, they typically offer lower returns compared to riskier corporate bonds. Government bonds may either municipal bonds, which are issued by state or local governments and frequently offer tax advantages, or Treasury bonds, which are issued by the United States Department of the Treasury and offer reliable fixed-interest payments. Both are considered safe, low-risk investments, although the financial health of the municipality does matter for municipal bonds.

Pros

- Help dampen volatility in a diversified portfolio
- Generate income to offset potential stock market declines

Cons

- May not generate enough return to meet retirement needs
- Corporate bonds come with default risk

### 3. Long-term dividend stocks

Dividend stocks have long been considered a key part of a long-term investment portfolio. The income they produce can help offset stock price declines. Dividend-payers are among the best long-term stocks.

That consistent income stream is especially valuable for retirees or anyone else who’s seeking passive income. It makes a lot of sense: If you’re retired and withdrawing money to cover living expenses, you’d prefer to use the dividends, rather than cashing out your stock holdings.

Dividend-paying companies are generally more established and financially stable. More than three-quarters of stocks in the Standard & Poor’s 500 index pay a dividend, as do most of the 30 stocks in the Dow Jones Industrial Average.

However, investors should consider the quality and sustainability of their dividend payments when buying long-term stocks. For example, a high dividend yield sounds great, but a stock’s yield may only be high because it’s paying an unsustainable dividend as its stock price sinks. Investors should understand a company’s financial health and dividend history before investing.

Reinvesting dividends can also juice up your returns due to compounding. When dividends are reinvested, they’re used to purchase more shares of the stock, leading to growth over time.

For example, say two hypothetical savers invest $10,000 each to buy 100 shares of a $100 stock, and assume the stock appreciates 5% per year and pays a constant annual dividend yield of 3%. One saver reinvests the dividends into more shares of stock annually, and the other takes the dividend payments as cash.

Over a 30-year period, the saver who reinvested dividends ends up with $100,627, more than double the $43,219 total earned by the saver who chose not to reinvest dividends.

Pros

- Generate income to offset potential stock price declines
- Generally from more established and financially stable companies
- Reinvesting dividends can greatly boost compound returns

Cons

- High dividend payments may be unsustainable for some companies
- Price returns may not keep pace with growth stocks

### 4. Value stocks

Value stocks are those that are undervalued by the market, usually trading at low price-to-earnings ratios or low prices relative to their intrinsic value. Here's why they are important components of a long-term portfolio:

- Diversification: Investors can gain some level of diversification by Including value stocks alongside growth, bonds and other asset classes. Value stocks may come into favor when growth stocks are shunned, which should help balance out the performance of an investment portfolio.
- Historical performance: Value stocks have historically provided competitive returns over longer time horizons. In fact, in certain market environments, value stocks often outperform growth stocks.
- Income generation: Quite often, value stocks come from established companies with extensive histories of paying dividends. The result is a steady stream of income that may be attractive for income investors or investors in their retirement years.
- Risk mitigation: Value stocks generally exhibit less volatility than growth stocks and can therefore provide cushion and smooth out returns during down markets.

Pros

- Often trade at low multiples to earnings
- Provide diversification to a portfolio of growth and dividend stocks
- Generally come with less volatility than growth stocks

Cons

- Must generally maintain a long-term investment horizon to realize full return potential
- May underperform while growth and other stocks are in favor

### 5. Long-term investing with real estate

Many investors like investing in real estate for the long term, in addition to liquid investments. You may be wondering whether now is a good time to invest in real estate, given interest-rate fluctuations.

Over the long term, real estate tends to appreciate. But before committing a big chunk of money to brick-and-mortar investments outside of your primary residence, investors should be familiar with the pros and cons.

Pros

- Stability and appreciation: While real estate may fluctuate in the short term, property values generally increase over the long term for investors who are patient. This makes real estate one of the better long-term investments.
- Cash flow: Real estate gives investors the ability to generate rental income, which can create a stream of consistent cash flow.
- Diversification: Having real estate in your portfolio also helps with diversification, as its performance often differs from the performance of stocks and bonds. This aids in mitigating risk during down markets.

Cons

- Lack of liquidity: Because real estate is not nearly as liquid as the stock or bond markets, it can be a challenge to sell a property in short order if you need quick cash.
- High initial costs: Acquiring property requires substantial upfront expenses, including down payments and ongoing maintenance.
- The hassle factor: Real estate investments require hands-on management, with potential issues like tenant problems, property damage and zoning issues to consider.

3D rendering robotic businessman hand point on graphic displayPhonlamaiPhoto/iStock

### 6. Robo-advisor portfolio

Available at most brokerage firms, a robo-advisor is an automated financial platform that uses algorithms and data-driven strategies to efficiently and inexpensively invest client portfolios. These platforms have several key advantages for long-term investors.

- Cost: Since robo-advisors generally charge lower fees than human financial advisors, they can be a very cost-effective solution that may save investors money over the long term. However, extra services like financial planning are generally not included.
- Diversification: Robos also offer diversification, as they use algorithms to create balanced portfolios of exchange-traded index funds that spread risk across several asset classes. That diversification helps reduce the effects of any one asset class tanking.
- Convenience: Investors who want automation and convenience without the hassle of investing their own portfolios often benefit from the ease of using a robo-advisor. A robo-advisor takes out the human element, which includes opinions, fear and greed, meaning your portfolio is allocated by data alone.
- Discipline: Robo-advisors replace human emotional biases with disciplined, data-driven strategies that can help investors stick with a long-term portfolio. Robo-advisors help you avoid worrying about that perennial question, “What should I invest in right now?”

Pros

- Automated investments provide instant diversification
- Often invested in low-cost index funds
- Available at most major brokerage firms

Cons

- Range of investments may be limited by provider
- Less personalized than working with a traditional financial advisor
- Some robo-advisors have fees or subscription costs

### 7. Tax-efficient, long-term investing with Roth IRA

Using a Roth IRA to save for the long term is a proven way to grow wealth given several of its key characteristics.

- Investment choices: Within a Roth IRA, you have plenty of investment options to choose from, including stocks, bonds, ETFs and mutual funds.
- Tax treatment: Contributions to a Roth IRA are made with after-tax dollars, meaning your withdrawals in retirement are generally tax-free. With a Roth IRA, you get tax-free growth on your investments, which is a significant benefit over the long term. In particular, you’ll save on taxes in retirement, which is a big advantage.
- Withdrawal rules: Roth IRAs have no required minimum distributions during the account holder's lifetime. That means you have tremendous flexibility when it comes to letting your money grow for as long as you want.
- Estate planning: If you’re thinking about your financial legacy, a Roth IRA can be an excellent estate-planning tool, as you can pass wealth to your heirs tax-free.

Pros

- Funded with after-tax dollars, and withdrawals are generally tax-free in retirement
- Provide an easy way to save and invest for retirement
- Can invest in Roth IRAs in addition to workplace retirement plans

Cons

- Contribution limits are lower than workplace retirement plans
- Contribution amounts may be limited depending on income
- Early withdrawals subject to penalties and taxes

## How to best invest for the long term

There are a lot of things to consider when formulating your long-term portfolio, but fortunately, there are plenty of places to turn for help with choosing investments. Whether you are investing for retirement or something else, here are some key steps to consider when making these important decisions:

### 1. Set clear financial goals

Begin by defining your financial objectives. Determine whether you are saving for retirement, a home, your child's education or something else. If you will need the money in five or more years from now, your investment is for the long term. Knowing your purpose for investing will help shape your strategy.

### 2. Assess your risk tolerance

Evaluate your risk tolerance honestly. Some investments come with higher risks but may offer greater potential returns. Be sure your investment choices align with your risk tolerance to avoid unnecessary stress. Having a high risk tolerance isn’t necessarily better. If you get nervous and can’t sleep when the market is volatile, that’s not a high risk tolerance, and that’s OK. Likewise, if you only have a few years before retirement, it’s generally wise to minimize your risk.

### 3. Diversify your portfolio

Diversifying your portfolio means spreading your investments across different asset classes, such as stocks, bonds, real estate and possibly alternative investments, such as commodities. Diversification helps to mitigate risk because different asset classes often perform differently under various economic conditions. You can think of it this way: If one investment zigs, you want another to zag. That smooths your return over time and can help protect you in market downturns.

### 4. Establish a time horizon

If your investment goal is several decades away, you may choose to take on more risk, as you have time to recover from market downturns. However, if you are already retired, but your life expectancy is another 30 years, you want to be sure your portfolio is generating the income you’ll need, factoring in inflation, for as long as you’re around. And don’t forget to take into account the life expectancy of your spouse or partner and the combined income you both generate.

## Frequently asked questions (FAQs)

Is now a good time to buy stocks for a long-term investment?

As the saying goes, the best time to plant a tree was 20 years ago, but the second-best time is now. As you can see, that advice applies to investing. You want to take advantage of long-term price appreciation as well as the magic of compounding. Even if prices seem high, you risk missing opportunities if you try to time the market and wait for prices to come down.

Why are long-term investments good?

In addition to piling up your retirement nest egg, long-term investments offer the potential for compounding returns while riding out short-term volatility and market downturns. Your long-term investments can provide you with financial security and wealth accumulation over time, so the money is there when you need it.

Which is the best investment option for a person who wants to make a long-term, tax-free investment?

While the best option for one person is not necessarily the best option for another, a Roth IRA is often a good choice for long-term retirement savings. Because a Roth is funded with after-tax dollars, the account can grow tax-free.

Withdrawals after age 59 1/2 are tax-free, as long as the account has been open for five years or more.

What is a long-term investment that will increase in value?

As a general rule, the stock and bond markets increase in value over time and are suitable for long-term investors, such as those saving for retirement.

Retirement savers can fund vehicles such as 401(k)s or IRAs to participate in this long-term market growth.

Editorial Disclaimer: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airlines, hotel chain, or other commercial entity and have not been reviewed, approved or otherwise endorsed by any of such entities.

This content is for educational purposes only and is not intended and should not be understood to constitute financial, investment, insurance or legal advice. All individuals are encouraged to seek advice from a qualified financial professional before making any financial, insurance or investment decisions.

Note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed or may no longer be available.

What is in this guide?

- What to invest in now for the long term

- How to best invest for the long term

- Frequently asked questions (FAQs)

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