The 5 Best Long-Term Investments for Beginners
One of the best decisions any person can make early in their adult life is to begin investing. The earlier you start investing, the longer the time horizon you have for your wealth to accumulate. The question is, what are the best long-term investments for beginners? If you’re going to “set it and forget it” for decades, you want to make sure you’re invested in something that’s going to appreciate substantially.
Below, we’ll dive into five of the best long-term investments for beginners and explain why they’re attractive for those who want to feel confident in their investment decisions over the long-term.
1. Dividend Aristocrats
They’re not going to appreciate at the rapid pace of growth stocks or multiply in value like a small cap diamond in the rough. That said, Dividend Aristocrats are among the most-stable and safest long-term investments a beginner can make.
Dividend Aristocrats are companies that have paid (and raised) their dividend for at least 25 consecutive years. These are large, stable companies that return undisputable value to shareholders. Examples of Dividend Aristocrats include:
- Dover Corporation (NYSE: DOV), 66 years of dividends
- Proctor & Gamble Company (NYSE: PG), 66 years of dividends
- Genuine Parts Company (NYSE: GPC), 66 years of dividends
- 3M Company (NYSE: MMM), 64 years of dividends
- The Coca-Cola Company (NYSE: KO), 60 years of dividends
- Colgate-Palmolive Company (NYSE: CL), 60 years of dividends
- Emerson Electric Company (NYSE: EMR), 60 years of dividends
- Johnson & Johnson (NYSE: JNJ), 60 years of dividends
The list of Dividend Aristocrats in 2022 is 65 companies long. Investors can purchase stock in these companies and set up a dividend reinvestment program (DRIP) with confidence, knowing their wealth will compound over time. Just remember: the IRS taxes dividend distributions as income!
2. Mutual Funds
Mutual funds are an excellent investment for beginners who don’t have the confidence to pick and choose their own stocks, or manage their portfolio over time. One of the biggest draws for a mutual fund is the fact that there’s a fund manager making these decisions and that their position rides on the success of the fund.
Mutual funds are well-structured for new investors. You can purchase shares like you would a stock, they typically have low expense ratios and your investment becomes part of a pool that makes leveraged buys easier. Mutual funds give investors much of what they’re looking for in an equity investment, without any of the responsibility that accompanies portfolio management. For a true “set it and forget it” investment that you can contribute to over time, it’s difficult to match the appeal of a mutual fund.
3. Low-Fee ETFs
If you’re the type of person who prefers a little more control over their investment, but still want the peace of mind that comes with diversification, ETFs offer some appeal. ETFs present beginner investors with a basket of stocks that give them exposure to a group of companies or access to a broad index. In fact, ETFs minimize risk, maximize exposure and reduce the amount of engagement investors need to have when it comes to their portfolio.
ETFs are great for long-term investors because there’s a wide variety of products to choose from. Want to take on more risk for the potential of more reward? Invest in a fast-growing tech ETF. Interested in heavy dividend payouts without owning all the companies required to get the payout? Try a leveraged dividend ETF. Think emerging markets will outperform over the next few decades? Open a position in an emerging market fund.
No matter what type of ETF you invest in, make sure it has a low-to-no expense ratio. Fees will eat into your profits and cost you money over time. Long-term investors should avoid funds with high expense ratios (anything above 1%).
4. Blue-Chip Stocks
Blue-chip stocks are market leaders in their industry. Moreover, they’re stocks that have and will continue to control the bulk of market share and adapt to industry trends. These are companies most people are aware of. For example, think Apple (NASDAQ: AAPL), Bank of America (NYSE: BAC), Coca-Cola (NYSE: KO) and Lockheed Martin (NYSE: LMT).
Blue-chip stocks offer great long-term prospects. They’re stable, tend to have exceptional leadership, don’t typically have cash flow problems, generate strong sales, have great credit ratings and are largely positioned to adapt in any market. Even in the event of a bear market, blue-chip stocks find ways to remain profitable and return value to shareholders. Many are also dividend-paying stocks.
5. Real Property (Real Estate)
While it has a larger barrier to entry, real estate is often regarded as the best tool for building generational wealth. Property appreciates slowly but consistently over time, and it’s an ideal place to put your wealth over the decades. Many people who purchase a home don’t realize that their largest asset is also an investment.
But a home requires upkeep over time and comes with recurring expenses (like property tax). And it can also become a source of passive revenue via rental income. Investors who have the capital to secure a mortgage and the wherewithal to operate a rental property will find that it’s one of the best ways to generate wealth over the long-term.
Explore the Best Long-Term Investments for Beginners
The best long-term investments for beginners are those with very little risk exposure. Volatility and risk can greatly impact your ability to accumulate wealth over time. Instead, remember that slow and steady wins the race.
Looking for tips on how to get started with these different types of long-term investments? Subscribe to an investment newsletter, read blog posts, watch YouTube videos and absorb as much information as you can about long-term investing. Once you understand the fundamental forces behind wealth generation, you’ll be better-equipped to pick investments that position you for maximum ROI.