How to Invest Money for Long Term

Long term investments refer to investments at the time scale of five to 10 years or more. You may want to start thinking about long term investments if you already take advantage of tax-deductible retirement contributions such as 401(k) plan and have saved enough for an emergency fund. This article will introduce you to various ways of investing for long term.

Instructions

1. Invest in government bond funds if you look for safe investments. Government bonds are often regarded as low-risk. In layman term, you basically loan your money to the government. The government will back the interest payments on the bond and the return of the principal. Many companies, including Vanguard Group and Fidelity, offer U.S Treasury bond funds and charge 0.15-0.3 percent for operating expense. You can also buy U.S. Treasury bonds directly from the Federal Reserve Bank. The major risks associated with government bonds are inflation and the government budget. You can reduce the risk of inflation by buying inflation-indexed government bonds. Budget deficits imply that the government might borrow more in future, hence, reducing the price of existing government bonds. Federal bonds are tax-free. Note that the yields of government bond funds are generally low.

2. Invest in state and federal tax free bond funds. Examples of state and federal tax free bond funds include Vanguard California Tax-Free Insured Long Term and Fidelity Spartan Connecticut Muni Income.

3. Buy CDs if you do not want the principal of your investment fluctuate in value. CDs stand for certificate of deposits and are sold by banks. Unlike bonds, you have to pay a penalty if you want to assess your money prior to the mature date of a CD. Profits gained from CDs are also taxable.

4. Invest in mutual funds if you look for higher return on your investments. A mutual fund gathers money from investors and uses this money to invest in stocks, bonds and other types securities and assets. Mutual funds are not insured by Federal Deposit Insurance Corporation (FDIC). Mutual funds are managed by professionals, who work to maximize returns on the investments. Compare the costs and the performance of mutual funds from different company before you buy.

5. Buy annuities if you are ready to leave your money 10 to 15 years or more. An annuity is a crossover between insurance and investment. In general, annuities offer tax-deferred accumulation so your investment can grow without excessive annual taxation.

6. Invest in real estate or small businesses if you are willingly to take a higher level of risk. In general, the price of housing increases at a rate faster than most financial index at the long term. However, be extremely careful if you buy real estates in regions which exhibit great fluctuations in housing price over time. There is always a possibility that you buy the property when the price already peaks. Investing in real estate can be profitable in areas with high demand for housing like San Francisco, New York or other metropolitan areas. The housing price has steadily increased over the past decades. In the case of economic downturn, you can always rent out your property. However, you have to be very confident about your financial health and whether you can afford to pay the monthly payment in the future if you take a mortgage loan from the bank. Otherwise, you might lose your property. Becoming an owner or shared owner of a small business is another way of reaping long term benefits when the business becomes profitable. However, small businesses have high risk of failure. Less than 10 percent of small businesses survive more than five years.

Resources

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