Investing for the long term has many advantages. Holding onto positions can allow enough time for your strategy to come good. If you’ve spotted a trend and backed it, there may be a lag before the rest of the market draws the same conclusions.
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Historical data also points to some assets generating returns over the long run. The adage about stock investing is that the secret is time in the market rather than timing the market.
Long-term investing can also be relatively light touch. Once you’ve done the necessary research to build a strategy and booked your trades, monitoring positions can take up only a minimal amount of time. That raises the question of which assets are the best ones to consider.
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What are Long-Term Investments
Any asset which is held for longer than one year is typically thought of as a long-term investment. There aren’t any hard and fast rules, and the holding period can vary for different asset groups.
Stock investments, for example, are typically considered long-term if held for more than 12 months, but property assets might need to be held for five or more years to be regarded as a long-term prospect.
Long-term investing is often associated with specific financial goals. Saving and investing as part of planning for retirement can be a project which lasts decades. Planning for a trip of a lifetime, or buying a new house, might be completed over a shorter timeframe.
Individuals need to establish what final investment goal they are working toward because it can influence their asset choices and strategy selection.
The Best Long-Term Investments in the UK
Investing for the long term has been made easier and more cost-effective thanks to intense competition among brokers. Not only do they compete on price, but to gain market share, they also offer innovative new products designed to generate long-term returns.
That’s a win-win for investors who can take advantage of the opportunities available and, with a carefully thought out plan, can build a diversified portfolio with specific aims.
Our list of the best long-term investments includes items with a compelling reason for you to invest in them. They also give an indication of the range of assets on offer.
- FTSE 100 ETF
- Anglo American Plc (LON: AAL)
- Property Funds
- UK Dividend Stocks
- Government Bonds
- Crypto CopyPortfolio
FTSE 100 ETF
The FTSE 100 is the index of the largest 100 companies listed in the UK. The largest firm in the index is oil and gas giant Shell Plc (LON: SHEL), and the firm with the smallest market capitalisation is Dechra Pharmaceuticals Plc (LON: DPH).
If you invest in the FTSE 100, you are investing in blue-chip stocks which have established business operations and the critical mass to generate long-term profits.
If one of the firms suffers a change of fortune and becomes less attractive to investors, its market cap will fall, and it will be ejected from the index. That reorganisation is managed by the fund manager, so you don’t need to do anything to cut your losses on the position. At the same time, if a new up-and-coming firm qualifies, it will enter the FTSE 100 and become part of your portfolio.
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The iShares Core FTSE 100 ETF (ISF.L) is available at eToro and offers traders the chance to take a position in the top 100 UK companies with the click of a button. As a passive tracker fund, it is also a cost-effective way to invest. The Total Expense Ratio (TER) of 0.07% means that for every £1,000 invested, the annual management fee will be just £0.70.
Anglo American Plc (LON: AAL)
The beauty of ETF funds is that they mitigate single stock risk, but if you’re looking to introduce greater risk-return into your long-term strategy, mining giant Anglo American fits the bill. The firm operates globally and is a major player in the platinum, diamond, copper, coal and iron markets.
Commodity markets are notoriously cyclical because demand for their products is a function of the health of the broader global economy. At the same time, it can take years for new mines to come online, and that supply-side lag means a burst of economic growth drives up the prices of commodities.
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Mining stocks such as AAL look set to benefit from the move to a lower-carbon global economy. Building the infrastructure required to support new, greener alternatives such as EVs will need vast amounts of raw materials, which could result in a ‘commodities super-cycle’ forming.
Booms in the commodity markets can last for decades, and many analysts think we’re due one, as the last one was seen in the early 2000s. That makes Anglo American stock an ideal pick for a long-term investment portfolio with a weighting towards higher risk return.
Property Funds
Real estate investments have traditionally generated healthy long-term returns for investors. The world’s population is estimated to be growing by 67m people each year, and as Mark Twain is quoted to have said, “buy land, they’re not making it anymore”.
The main problem with property investments is that they can be very illiquid, so getting your money back quickly can be difficult. Property is, therefore, an ideal asset group for long-term rather than short-term investors.
The Real Estate Select Sector SPDR Fund ETF (XLRE) includes securities of companies from the following industries: real estate management and development and REITs, excluding mortgage REITs. Stocks bought are those of large-cap blue-chip companies, and with 34 different holdings, it offers exposure to varying areas of the property sector.
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Buying property outright can also be expensive in terms of transaction and administration costs. Because the Real Estate Select Sector ETF gains exposure to the sector by buying the stocks of property firms, the TER is only 0.10%.
Dividend Stocks
Firms that pay out high dividends to investors are relatively conservative investments. Established orthodoxy is that high-yield stocks are a good source of steady long-term returns and an investment which can also be an excellent counterbalance to some riskier positions in your long-term portfolio.
If you’re planning on factoring in income returns into your portfolio, you can hand-pick names from this list of high-yield UK dividend stocks. An alternative approach is buying an ETF such as iShares Core High Dividend ETF, which includes 75 dividend-paying stocks screened for financial health.
YOUR CAPITAL IS AT RISK. 68% OF RETAIL CFD ACCOUNTS LOSE MONEY.
Another factor which makes dividend stocks ideal for long-term investors is that re-investing dividends into buying more stocks can help your position snowball. High-yield stocks are sometimes considered low growth – they are, after all, returning cash to investors rather than investing in exciting new projects; however, there is potential for capital gains.
Government Bonds
Government bonds are generally considered a lower-risk option than stocks or corporate bonds. The returns are fixed and set by the issuer, the UK government. The main potential risk is that the UK government defaults on the deal, which is considered highly unlikely.
It’s possible to make returns greater than those offered by holding cash in savings accounts, and the predictability of bonds can help investors plan. If you’re investing for a date one, two, or five years in the future, you can accurately forecast the return the bonds element of your portfolio will make.
Traditional investment advice is that long-term investors should hold a percentage of their total capital in bonds. The security they offer helps with planning and also facilitates spare capital being allocated to riskier investments.
YOUR CAPITAL IS AT RISK. 68% OF RETAIL CFD ACCOUNTS LOSE MONEY.
It’s possible to buy bonds directly from the government Debt Management Office or by using an ETF fund. The iShares 20 + Yr Treasury Bond ETF (TLT) takes positions in a variety of long-dated US bonds and has a TER of 0.15%.
Cryptocurrency
Making long-term financial plans might be part of sensible investing, but it doesn’t have to be boring. Tapping into potential life-changing returns is very much part of the strategy, and the risk is managed by allocating only a small percentage of capital to assets like cryptocurrency.
To some, cryptocurrencies represent a speculative bubble; to others, it’s an innovative and under-priced tool that will revolutionise the global financial system. Past prices aren’t a guarantee of future returns, but some who have held a long-term investment in crypto have, to date, by and large, recorded eye-watering gains.
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The CryptoEqual copy portfolio at eToro allows clients to gain diversified exposure to the leading cryptos, which can potentially reach adoption in various industries. It casts a broad net so that investors can, in one trade, have a better chance of catching the next winner in the sector.
Things To Consider When Building a Long-Term Investment Portfolio
After selecting the assets you want to buy for long-term returns, the next step is setting up your portfolio to make trading as simple and cost-effective as possible. Some unique features are associated with investing for the long term, so getting things right from the start of the process can improve your trading returns.
STEP 1 – KNOW YOUR INVESTMENT AIMS
The above list contains assets with very different risk-return profiles. Establishing your risk appetite and timeline horizon is vital as long-term investing can be a rollercoaster ride, and you’ll want your portfolio to mature at a specific date.
Designing a strategy that factors in your attitude to risk also goes some way to taking the emotion out of the situation and avoiding the chance of making panic decisions.
STEP 2 – HAVE A CLEAR STRATEGY
All investing should be based on using funds you can afford to lose. There is a greater likelihood of that happening with a crypto-based strategy than with bonds. But whatever the assets involved, effective portfolio management includes giving thought to the entry price and exit price levels and ways in which you will manage risk.
STEP 3 – BUY THE RIGHT INSTRUMENT
If you’re holding an asset as a long-term investment, it’s essential to check the T&Cs. Depending on whether your investment is in equity, ETF, or fund form, will determine the administrative costs applied. If you’re holding your position for several years, these can add up, and as CFDs can be particularly expensive, long-term investors must avoid using them by mistake.
Another potential cost to look out for is account inactivity fees. These vary from broker to broker and reflect that client accounts are costly to maintain. Checking the T&Cs is important as there are ways to swerve the charges.
STEP 4 – CONSIDER USING TAX-EFFICIENT INVESTMENT VEHICLES
Investing over the long term can benefit from certain tax breaks. Pension funds, SIPPs and ISAs all come with some degree of preferential treatment. ISAs (Investment Savings Accounts) are a popular option for those in the UK who believe they have found the best long-term investment that supports a variety of asset groups. This article explains how to take advantage of tax-free investing.
STEP 5 – MONITOR YOUR LONG-TERM INVESTMENT
One of the advantages of long-term investing is that it can be relatively hands-off. In fact, not tinkering with a position and sticking with your strategy is recommended. The truth is that things change. If an unexpected event changes the basis of your strategy, then be prepared to reassess.
Choosing a broker that offers news and price alerts sent to your email or phone can help you keep up to date without having to devote too much time to the markets.
The Advantages of Long-Term Investments
The main advantage of long-term investments is that statistically speaking, you’re more likely to make a profitable return. Historical data points to stocks and bonds making returns greater than if you held your cash in a savings account. However, it can be a bumpy ride, and the longer you hold the position, the more likely it will revert to mean.
The Disadvantages of Long-Term Investments
First, there is the opportunity cost associated with your investment. The funds tied up in a long-term strategy could be used to finance other investment ideas. They could be short-term trading strategies, financing education and training courses which help develop your career, or a business side-line.
There is also a risk that your situation may change and cause you to become a forced seller. Liquidating positions to meet cash flow demands leaves you open to selling up at the wrong time.
How to Securely Invest Money Online
Whether you are investing intending to reap returns in one or 20 years, getting set up at a broker takes minutes. Onboarding to a trusted and reliable investment platform can be done entirely online using a desktop or handheld device.
1. CHOOSE A BROKER
Once you have your investment decision confirmed, it’s a case of finding the right broker to trade with. The most important thing is to choose a broker that is regulated by a tier-1 regulatory authority, such as one of the following:
- The Financial Conduct Authority (FCA)
- The Australian Securities and Investments Commission (ASIC)
- The US Securities and Exchange Commission (SEC)
- Cyprus Securities and Exchange Commission (CySEC)
It’s also worth noting that different brokers focus on different markets. Some specialise in providing no-frills access and super-tight trading spreads. But when investing over the long term, a $5 saving on your initial purchase is a relatively small advantage if your broker doesn’t offer you research and news to help you follow the market.
If you are ready to add some long-term investments to your portfolio, you’ll need a regulated broker with low fees and a user-friendly platform. Choosing one can be daunting, so we’ve selected some of our favourites that tick all the boxes.
2. OPEN & FUND AN ACCOUNT
Setting up an account is completed online. It takes a few minutes to work through, and as it can be done using a mobile phone, you can complete the process even when you’re out and about.
Account verification is almost instant, and payments into your new account using a debit or credit card typically arrive immediately. Other payment options, such as bank transfers, are available but usually take longer to clear.
3. RESEARCH COMPANIES USING FUNDAMENTAL AND TECHNICAL ANALYSIS
A lot of the work with long-term investing is finished before trading. Once your strategy has been formulated, it’s a case of waiting to see if it works out as expected. Beforehand, your shortlist of markets will need to be studied in depth.
Many investors use Fundamental Analysis to identify targets and Technical Analysis to help them find the optimal time to pull the trigger. Good brokers offer reports and tools to help you with research.
4. OPEN A TICKET ORDER AND SELECT YOUR POSITION SIZE
The process of buying shares and other assets is user-friendly. Locate the market by searching your broker’s database and input the number of shares you want to trade. Depending on your strategy, you might want to consider using a stop-loss or take-profit order. These risk-management tools are automated instructions you input into the system to trade part or all of your position if the price moves to a specified level.
5. SELECT & BUY UK LONG-TERM STOCKS
When everything is in place, it’s simply a case of clicking your mouse or tapping your screen. You will then convert a proportion of your cash balance into stocks, which then fluctuate in value in line with the market price.
One top tip shared by pro traders is to ensure you bought what you wanted. It’s easy to make a ‘fat finger’ error, and any errors are best corrected before market prices move.
Final Thoughts
The above assets have been picked because they are likely to generate returns over a period in excess of one year. They all have a good reason to be included, but long-term investing is about spreading capital across the financial markets, so choosing just one of the investment ideas could backfire. Allocating capital wisely can help your long-term portfolio come good at the right time, and diversifying your holdings also helps with risk management.
On the subject of risk management, if you’re looking to buy-and-hold, or to some extent buy-and-forget, then choosing a trusted broker is crucial. This list of cost-effective brokers includes the names of well-regarded firms which have been operating for decades, so they should be in a good position by the time your investment matures.
