Choices for long-term investments
Here’s a look at some investments you might consider including in your portfolio for the long haul.
1. Stocks
Equities (or stocks) give you a share of a publicly traded company. This partial ownership may entitle you to receive dividends. And if the company performs well and the stock rises over time, you might eventually sell the stock for a profit.
Pros
- There’s potential for significant gains over time that outpace inflation.
- Possible dividends could provide income and the option for the investor to reinvest those dividends for additional growth potential.
- Stocks of many companies are highly liquid, meaning you can generally sell them quickly if you need the money.
Cons
- Returns aren’t guaranteed, and the loss of your initial investment is possible.
- Stocks can be volatile, and it’s nearly impossible to perfectly time your buying and selling decisions.
How to invest in stocks
To invest in stocks, you could open an investment account at a brokerage firm and buy them on your own, use a robo advisor to automate the process, or work with a financial advisor to manage your portfolio for you.
2. Long-term bonds
A bond is a loan made to a company, government, or municipality with the expectation the issuer will repay you with interest. Long-term bonds typically take 10 to 30 years to reach maturity—the date when the investor is entitled to the full amount of interest and the principal repaid.
Pros
- Generally, long-term bonds come with semi-annual interest payments.
- They’re generally less volatile than many other investments.
- They’re considered lower risk than stocks.
Cons
- Returns may not keep pace with inflation.
- Long-term bonds can be more sensitive to interest rate fluctuations.
- The issuer could call back the bond early if the bond does not have call protection, which is also known as a callable bond.
- Lower quality bonds, such as high yield bonds, have increased risk of default and may be relatively volatile.
How to invest in bonds
To invest in bonds, you can purchase newly issued bonds directly from the issuer or from dealers offering the bonds on the secondary market. Within your investment account, you can also directly buy bond funds, which bundle many different bonds into one investment to help provide diversification.
3. Long-term CDs
With a CD, you agree to leave your money invested for a certain period of time in exchange for a fixed interest rate. Long-term CDs can have maturity periods as long as 10 years. Some CDs may have even longer maturity periods, but these are typically less common.
Pros
- Lower risk: All brokered CDs offered by Fidelity are FDIC-insured for up to $250,000 per account owner per financial issuer.1
- They tend to offer higher interest rates than savings accounts.
- Longer-term CDs typically yield more than shorter-term CDs, but this is not always the case and has not been the case in recent years.
- They provide mostly predictable income and come in a range of term lengths, offering flexibility to align with your cash-flow needs.
- You pay $0 to buy a new issue brokered CD at Fidelity. The issuing bank pays Fidelity.
Cons
- Returns could lag behind inflation, and longer-maturity brokered CDs are more sensitive to interest rate fluctuations should you need to sell them in the secondary market before they mature.
- Trading costs and illiquidity could result in a higher likelihood of realizing a loss in the event that you need to exit the investment early.
- The minimum purchase amount is $1,000 per CD, but Fidelity also offers Fractional brokered CDs, available in minimums and increments of $100.
- An issuer can redeem a callable CD before its maturity date. If this happens, you will receive your principal back but you will lose out on the future interest payments you expected to receive, and you may have to reinvest at a lower rate.
How to invest in CDs
You can buy CDs through a bank. Brokered CDs, which operate similarly to traditional CDs, can be purchased through a brokerage firm. Interest rates and terms vary, so shop around to find the best CD for you.
4. Target date funds
With a target date fund, the fund’s stated target date determines the fund’s asset allocation. Investors typically choose a fund that aligns with their own investment timeline. The fund typically starts out more aggressive and becomes more conservative as the target date approaches. Target date funds are common vehicles for retirement saving.
Pros
- Each fund is a mix of different investments, offering built-in diversification.
- Fund managers regularly rebalance the fund, so you don’t have to.
- Risk is managed for you—the mix of assets becomes more conservative as the fund approaches its target date.
Cons
- The investor lacks control, since a fund manager makes all the changes.
- Fees may apply.
- The investments can’t be customized for an individual investor, so investors with relatively higher or lower risk appetites for a given target date fund’s asset allocation mix may not find these ideal.
How to invest in target date funds
If you have a 401(k) or other workplace plan, you may already be investing in one. Otherwise, you can invest in a target date fund through many brokerages.
5. Other funds
Exchange-traded funds (ETFs) and mutual funds generally hold a mix of investments, which varies depending on the fund’s underlying strategy. Both ETFs and mutual funds may be actively managed or passively managed (these may also be referred to as index funds). When actively managed, the fund manager seeks to outperform the market, whereas index funds seek to track the performance of an existing underlying index, such as the S&P 500.2 An important difference between mutual funds and ETFs is how they are bought and sold: An investor may purchase or sell a mutual fund once a day at the end of the trading day (based on the fund’s net asset value), whereas ETFs trade throughout the trading day on an exchange, just like stocks.
Pros:
- Professionally managed investment pools may offer greater diversification relative to individual stocks.
- There’s potential for significant gains over time.
- Potential dividends could provide income.
- They’re highly liquid, particularly ETFs, as they trade throughout the trading day.
Cons
- Returns aren’t guaranteed, and loss of your initial investment is possible.
- They could expose investors to short-term market volatility.
- Mutual funds and ETFs have expense ratios, which are fees investors pay to the funds that cover management, administrative, custodial, marketing, legal, and accounting costs, among other costs. Actively managed funds—with fund managers who try to outperform the market—could have higher expense ratios.
How to invest in ETFs and mutual funds: You can invest in these funds via a brokerage account and many tax-advantaged accounts, like retirement accounts and health savings accounts (HSAs). While there is typically no minimum investment for ETFs, mutual funds may be a different story.
6. Real estate
Anyone who buys a home with the hope of selling it for more in the future can be considered a real estate investor. The same is true of those who purchase rental properties, land, or commercial buildings.
Pros
- There’s potential for long-term appreciation.
- Your property could generate passive income from renters.
- Real estate investments may offer tax advantages, such as mortgage interest and property tax deductions on tangible assets, or corporate tax exemptions for REITs.
Cons
- Tangible real estate assets, like a home, can be harder to sell than other investments.
- Returns aren’t guaranteed.
- It’s expensive to buy and maintain a property.
How to invest in real estate: There are 4 basic ways: investing in real estate investment trusts (REITs), companies that own, operate, or finance income-generating real estate; investing in a real estate ETF or mutual fund; buying a home; or becoming a landlord.
7. Alternative investments
Alternative investments include opportunities beyond traditional investments like stocks, bonds, and cash. Alternatives include a diverse range of asset types and strategies, such as private equity, private credit, real estate, digital assets, and liquid alternatives.
Pros
- They could help diversify a portfolio.
- There’s potential for long-term appreciation.
- They can also help generate passive income.
Cons
- Some alternative investments lack liquidity.
- There may be higher and more complex fee structures.
- They can be complex.
How to invest in alternatives: It depends on the type. For some, like ETFs, commodities, and digital assets, it may be possible to invest via a brokerage account. Others, such as private equity, private debt, and real estate, may be available only to qualified investors. If you don’t have the credentials, you may not be able to invest in them at all. (Psst … Fidelity offers several alternative investments.)
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