Our Pick Of The Best Long-Term Investments (2024)

Investing is the process of aiming to use your money to generate a profitable return.

It’s worth remembering that all investing carries a risk of loss. In their quest to make a profit, for example, stocks and shares investors have to contend with both the ups – and the downs – of the market.

But keeping money under the bed can also prove challenging, especially in the face of the stiff economic headwinds that we’re all experiencing, and against the backdrop of a cost-of-living crisis.

This is due to the erosive effects of inflation on our cash. At the time of writing (March 2024), UK inflation stands at 3.4%, while the Bank of England’s official target is 2%.

Assuming the UK’s current inflation figure remained the same for a year, the purchasing power of a £1,000 nest egg left under the mattress would shrink to £966. A loss, in effect, of £34 and evidence that our finances are susceptible to threats of all kinds.

And don’t forget it was only in autumn 2022 that UK inflation stood at an eye-watering 11.1%. Had price rises remained at that level for a full 12 months, then the same nest egg would be worth just £889 after a year.

Whether you’re looking to take the fight to inflation, or build up a cash pile for a specific purpose – to help fund your retirement, for example – it could be beneficial to attempt to make your money work as hard as possible.

It may be sensible, therefore, to consider making investments.

Long-term view

According to Kate Howells, wealth manager at BRI Wealth Management, “a golden rule of investing is that you need to be in it for the long haul”.

Annabel Brodie-Smith of the Association of Investment Companies adds: “The last few years have been challenging for investors with much of that time characterised by a lengthy period of rising prices, while the terrible war in Ukraine gave inflation an unwanted boost. In these tough conditions, it is important investors have a diversified portfolio and take a long-term view.”

As the name suggests, investing for the long-term means keeping hold of your investments of choice for years, if not decades.

Why should I consider investing for the long-term?

Remember that the worldwide economy has put up with plenty of adversity over the decades and yet, over time, the stock market still manages to continue climbing.

Emma-Lou Montgomery, associate director, personal investing at Fidelity International Investing, says: “Investing, when done in the right way, means that your money is working the hardest it can for you. If you are in the right financial position, you can invest with confidence, and it can help you meet your financial goals sooner than later.”

Dean Butler, managing director for retail direct at Standard Life, says: “For those in a position to do so, investing money rather than keeping it in cash traditionally offers the potential for higher growth in the long run.”

Wealth manager Brewin Dolphin says that if you invested £100 in the FT-SE All Share index in January 1997, your investment would have increased in value to £278 by the start of 2022 assuming a total real return basis (in other words, taking account of share price changes and dividend income as well as adjusting for inflation but before fees).

In contrast, a similar size investment in a typical savings account would have turned into just £120 after adjusting for inflation.

Brian Byrnes, head of personal finance at Moneybox, says: “If, as investors, we can keep a sensible amount in cash savings, use our available tax wrappers [such as individual savings accounts] efficiently, and invest regularly into long-term diversified portfolios, the unpredictable nature of markets has less impact on us than it does for those investing for short-term gain.”

But what are the best long-term investments? The answer will depend on your personal circ*mstances, financial goals, and levels of risk tolerance. But they tend to boil down to a couple of tried and tested options associated with the stock market.

Of all the long-term investments that are available, stocks and shares are typically the best-known option for would-be investors.

Plenty of investors, especially those with time on their hands and who are able to research the market, aim to make money from individual stocks and shares.

Nowadays, a welter of trading platforms and investment apps mean there are more opportunities than ever before for would-be DIY investors to buy and sell shares.

However, it’s always worth bearing in mind that investing in individual companies is much riskier than investing in funds (see below).

This is because you’re placing your bets on single corporate entities, unlike relying on funds where your money is spread across the combined performance of a number of businesses, industrial sectors and markets.

Shares investing is typically only suited to those with long-term investment horizons, at least five years and preferably longer. In addition, it better suits investors who can demonstrate nerves of steel when it comes to their risk tolerance levels.

Risk and return

With direct stocks and shares investing, it’s possible to end up with greater returns than opting for a funds-based approach. But the trade-off is that you’re also exposing yourself to comparably greater risk along the way and therefore the potential for losses is that much more acute as well.

Bear in mind, it’s entirely possible for stock market indices to lose, say, 20% or more of their value over the course of a trading year. Financial commentators refer to this magnitude of decline as a ‘bear market’.

That said, markets have never ‘zeroed out’ – in other words, hit absolute rock bottom. This is in contrast with the publicly listed companies that occasionally go to the wall, especially at times of economic hardship. When this happens, shareholders can lose a large proportion, if not all, of their money.

Adrian Lowery, financial analyst at wealth manager Evelyn Partners, says lower asset prices are not all bad for regular investors with a long-term view: “As long as you do not need to access your investments before asset prices recover, and you are buying into the market at regular intervals, then falling markets are not wholly a bad thing.

“Those early in their investing phase will be picking up more shares than they were even a few months ago. If asset prices fall further, this will be accentuated. Keeping up payments, if it can be done, will take advantage of lower asset prices and the compounding power of early savings.”

Even if you’re willing to take on the risk of individual stocks, you’ll probably be best served by sticking with so-called ‘blue chip’ companies offering solid, long-term performance. Their share prices are less likely to suffer from major swings than newer, smaller companies, and some – especially those from ‘defensive’ sectors such as energy, utilities and mining – may pay dividends.

A dividend is a non-mandatory distribution, usually in cash, paid by a company out of its earnings to shareholders.

Investing In Funds

Despite a rise in the popularity of trading directly in companies, most people prefer to gain their exposure to stocks and shares by investing in funds managed by professionals.

Depending on your risk tolerance and personal investing requirements, there are thousands of funds to choose from, each managed on either a ‘passive’ or ‘active’ basis.

Passive investing

The aim of passive investing is to copy, or track, the return achieved by a particular stock market index, using computers to maintain a portfolio of shares that replicates the performance of the target index in question.

For example, this might mean reproducing the performance of the FTSE 100, the UK’s index of leading company shares, or the influential S&P 500 in the US. It’s also possible to track the performance of more tangible commodities such as precious metals, including gold.

To invest passively, retail investors – the likes of you and me – tend to rely on two main products.

The first choice comes via so-called index tracker funds. The second option is via an investment product called an exchange-traded fund (ETF).

Last year, ‘passives’ accounted for about a quarter of the £9 trillion European investment funds market.

Owning just one stock-based portfolio like an FTSE 100 index fund provides you with exposure to numerous stocks. As an investor, this means that you benefit from diversification, which decreases the risk that any one investment will lose you money.

We regularly ask investment experts to highlight the passive funds that they think would suit investors with different risk profiles. You can read more here about various selections covering both index trackers and ETFs.

Active investing

Active investment involves fund professionals striving to outperform a particular stock index or benchmark using a combination of analysis, research and judgment.

Active funds invest in a basket of companies chosen on your behalf by a portfolio manager. Monetary contributions are pooled from potentially thousands of investors, with the proceeds managed according to strict investment mandates, each with a particular target.

This might include being set the task of outperforming a benchmark stock index, such as the FTSE 100, by a specified amount each year, say, 1%.

Because of the way they work, active funds tend to cost more than passives. Offset against this the potential to experience superior returns (and losses) than those achieved by simply tracking an index.

We also ask experts to select funds from specific investment sectors that would be suitable for investors with different risk profiles.

You can read more here about their choices including funds with a UK, US and global bias, as well as portfolios aimed at investors looking for ‘safe haven’ portfolios.

Growth or value?

When making long-term investments in the stock market, you may also come across the twin concepts of ‘growth’ and ‘value’ investing.

Growth stocks and funds aim to provide their investors with returns by homing in on companies likely to experience rapid price appreciation. Growth stocks tend to perform best when interest rates are low and when economies are starting to heat up. Between 2010 and 2020, the US market was powered by a large number of growth stocks including technology giants Apple and Microsoft.

Apple share price

Value funds, on the other hand, look to invest in companies that are unloved or have been undervalued by the market.

Value investing incorporates a strategy of buying shares that investors believe are trading at a discount to their intrinsic value. The belief is that a company’s share price will rise in the future when it is revalued by the market.

Over the course of 2022, thanks to a significant shift in the economic backdrop worldwide, there has been a noticeable rotation away from a decade-long period of growth investing, to a time when value investing has come back to the fore.

Ride out the ups and downs

When investing in stocks and shares, either directly or via funds, you should keep your ultimate financial goals in mind and be prepared to ride out stock market ups and downs.

Whichever method you choose, there’s also a cost consideration. You aren’t charged for opening a current account with a high street bank but, when buying shares and/or funds, extra charges will be incurred such as dealing and administrative fees.

Investing in shares also means there may be tax considerations to weigh up, for example when it comes to selling all or part of your portfolio.

Before taking the plunge with any form of stock market-linked investment, consider asking yourself five questions:

• Should I take professional financial advice?
• Am I comfortable with the level of risk and can I afford to lose money?
• Do I understand the investment in question and could I retrieve my money from it easily?
• Are my investments regulated?
• Am I protected if an investment provider or my adviser/service provider goes out of business?

Investing In Bonds

If the prospect of investing long-term in companies is too adventurous for your tastes, another option is to consider gaining exposure to bonds.

Most of us are familiar with borrowing, whether it’s a few pounds from a friend, or via a formal loan such as a mortgage to help buy a property.

When governments and companies need to borrow money, one of the ways they do so by issuing bonds.

There are various types of bonds. Historically, certain bonds have been considered less risky than investing in shares or shares-based funds, because they provide regular income payments and entitle their owners to receive payment before shareholders if a company folds.

Bonds are also referred to as ‘fixed-interest securities’. In effect, these are IOUs issued by governments and companies that can be traded on the stock market.

The UK government issues bonds known as ‘gilts’, while their US government equivalents are called ‘Treasuries’. IOUs issued by businesses are referred to as ‘corporate bonds’.

In each case, the institution issuing the bond does so in exchange for a loan. Gilts and Treasuries represent government debt, while corporate bonds equate to company debt and are considered a higher risk because they are guaranteed only by the companies who issue them.

How do bonds work?

A loan may last for as little as a few months or, in the case of government debt, can extend to several decades. In exchange for their cash, bondholders typically receive an interest payment while the outstanding loan is paid back when the bond matures.

The annual interest paid over the lifetime of a bond is known as ‘the coupon’ and is expressed as a percentage of the face value of the bond. The coupon is also referred to as the ‘nominal yield’.

For example, a conventional UK gilt might be described as ‘3% Treasury stock 2030’. The 3% refers to the coupon, in other words, how much interest an investor would receive each year (usually paid half-yearly). ‘Treasury stock’ means you’re lending to the government and ‘2030’ refers to the bond’s redemption rate. This is when the bond holder receives back their original investment.

The size of the interest payment typically reflects the relative security of the IOU in question. The higher the coupon, the riskier the bond.

Global independent ratings agencies, such as Standard & Poor’s, Moody’s and Fitch Ratings, provide credit risk ratings for both government and corporate-backed bonds.

Bonds were once viewed as a means of earning interest while preserving capital. Today’s bond markets, however, are complicated affairs worth a staggering £100 trillion worldwide, according to the Securities Industry and Financial Markets Association.

Despite their undoubted financial clout, bonds tend not to occupy the financial spotlight in the same way as, say, stocks and shares. But, for many investors, bonds are an important long-term investment consideration thanks to their income-producing credentials.

Typically the main way for investors such as you and me to gain exposure to bonds is by investing in a specialist fund.

Earlier this year, we asked an investment expert to recommend several bond funds appropriate to different categories of investor.

Be mindful, the various types of bonds have unique characteristics influencing their risk and return profile. Understanding how they differ and the relationship between the prices of bond securities ,market interest rates, and the different risk levels the bonds carry is crucial before investing.

‘Time is your best friend’

There’s no such thing as risk-free investing – and that applies even for those who take a long-term approach.

But with the help of factors such as diversification, many of the risk factors can be mitigated smoothing your path, hopefully, to financial success.

Rob Morgan, chief investment analyst at wealth managers Charles Stanley, advises would-be investors that “time is your best friend”.

He says: “Don’t underestimate the power of even modest investments early on in life. You don’t have to shoot for the moon. In fact, a more measured and disciplined approach is likely to be more sustainable and reliable over the longer term, than chasing the latest fad or fashion.”