Cryptocurrency has had another incredible run recently. Particularly Bitcoin, the granddaddy of crypto, which has doubled in price in the past year. On Aug. 1, 2023, Bitcoin was still languishing below $30,000. A year later, it was trading at $64,680, according to CoinGecko data.
That’s an extraordinary recovery. But before you add crypto to your brokerage account, know that it’s still a highly volatile and risky investment. It can — and often does — drop by 10% or more in a matter of days. To build long-term wealth, slow and steady is a better mantra than high risk and hope.
Here are three strong long-term investments to consider. The right combination for you depends on your goals, risk tolerance, and investment strategies.
1. Exchange-traded funds (ETFs)
ETFs are essentially baskets of securities that come in different forms. What they have in common is that you can buy them from your stock broker just as you would a normal stock. Rather than getting shares in just one company, you’re accessing a mix that fits a particular theme.
You can buy ETFs for various assets, including stocks, bonds, and commodities. That might take the shape of:
- An index, such as the S&P 500
- A type of investment, such as dividend stocks
- An industry, such as the energy sector
- A bond ETF
If you’re new to investing, the powerful thing about ETFs is that it makes it easy to build a diversified portfolio. Let’s say you invest in an ETF that tracks the S&P 500. Historically, the S&P 500 has generated average annual returns of more than 8%. If you’re able to invest $300 a month and earn a return of 8%, in 30 years, you’d have over $400,000.
2. Real estate investment trusts (REITs)
REITs are companies that own and manage various real estate projects. For example, you might find a REIT that specializes in office buildings or warehouses. Others may focus on healthcare. These are a way to add real estate to your investments without having to actually buy property.
One interesting thing about REITs is that they have to pay at least 90% of their taxable income to shareholders in the form of dividends. Dividends are regular shareholder payments that you’ll get in addition to any gains from the appreciation of your holdings. If you reinvest your dividend payments, you’ll have more REIT cash earning returns.
That adage about not putting all your eggs in one basket is very true in regards to investing. As such, if you already own stocks, adding REITs to your portfolio is a way to spread your risk. Finally, performance-wise, analysis from The Motley Fool shows REITs outperformed the S&P 500 over the past 25 years.
3. Gold
Gold may be one of the oldest investments around, but it’s not a straightforward investment choice. It’s worth discussing here because some people see Bitcoin as a form of digital gold — particularly because it can act as a hedge against inflation.
Gold often holds its value — or even gains value — when the economy is struggling. It is viewed as a safe haven when things are topsy-turvy. The heightened geopolitical uncertainty we’ve seen this year is one reason prices have hit new highs. There’s a school of thought that says if the dollar or the stock market crash completely, gold holdings will still be safe.
Unlike stocks and REITs, gold won’t pay you dividends or generate income unless it increases in value. If you buy physical gold, you also need to think about how you might store it and insure it. If that doesn’t appeal, you might look to an ETF that holds gold or one that focuses on gold businesses, such as mining companies.
Forget crypto — it’s too risky
You might be looking at the assets above and thinking, “But if I’d bought Bitcoin a year ago, I’d have doubled my money.” That is true. The challenge with crypto is that you might make outsized returns, but you might also lose everything. It’s still a really new asset class ,and there’s a lot we don’t know.
For example, stronger crypto regulation could transform the whole landscape — not least because it might impact who is able to buy or sell digital assets. Plus, crypto faces challenges in terms of adoption and technical development. That’s one thing if you want to own a small amount of crypto alongside other assets. But that level of risk is not ideal if you’re planning for your old age.
All investments carry some risk. The stock market can rise and fall. But the beauty of investing with a long-term horizon is that you don’t need to take outsized risks in order to build wealth. If you have 30 years ahead of you, you can opt for lower-risk assets and let the power of compound interest work in your favor.
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