Best Long-Term Investments Right Now

The best long-term investments produce steady returns over a time frame of five years or more. Investments to consider include dividend stocks, ETFs and target-date funds.

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Updated · 4 min read
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Long-term investments are exactly what they sound like: Investments you intend to own for a long time frame — often, five years or more — despite potential short-term volatility. Retirement investments are one classic example of long-term investments.

Financial advisors generally say that the best long-term investment is a low-cost index fund. A low-cost index fund will track the overall performance of a stock market index, like the S&P 500, and aim to mirror that index's returns. However, there are other long-term investments worth considering, too, depending on your needs and risk tolerance.

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Best long-term investments

A long-term investor typically looks for investments that take more risk to reap potential long-term returns. However, the actual length of "long-term" can vary widely. In this article, we'll cover investments for money you won't need for at least five years. (Looking at a shorter time horizon? Check out our list of best short-term investments instead.)

🤓Nerdy Tip

If your long-term goal is retirement, you should start by investing in a 401(k) if your employer offers one. If not, most of the investments below can be held in an individual retirement account, such as an IRA or Roth IRA. For non-retirement goals, you can open a regular brokerage account.

1. Equity index funds

  • Potential annual return: 7% to 10% for a long-term historical average.

  • Pros: Long-term growth; diversification.

  • Cons: Higher risk; minimum investment requirements; fund fees.

One of the best ways to build a diversified portfolio is to purchase low-cost equity index funds. These funds track a stock market index — say, the S&P 500 — by mirroring its performance.

Look for a no-transaction-fee fund with a low expense ratio (annual fee) that invests in a broad market index — again, the S&P 500 is a good example. Another good example is a total stock market index fund, which gives good exposure to a broad range of U.S. stocks. As you add more money to your portfolio, you can diversify further by buying index funds covering international and emerging markets equities.

» View our list: Best index funds

2. Equity exchange-traded funds

  • Potential annual return: 7% to 10% for a long-term historical average.

  • Pros: Long-term growth; diversification; low minimums; tax efficiency.

  • Cons: Higher risk; fund fees.

ETFs are like an index fund that trades like a stock. You buy in for a share price rather than a fund minimum, which makes these funds easier to get into if you’re starting with a small investment and easier to diversify because you may be able to buy several funds with a relatively small amount of money.

ETFs also offer all the perks index funds do: Passive management that tracks an index, low expense ratios (in many cases — never assume a fund is inexpensive just because it’s an index fund or ETF) and the ability to buy a basket of investments in a single fund.

» View our list: Best ETFs

3. Robo-advisor portfolio

  • Current potential return: Varies based on investment mix.

  • Pros: Hands-off diversification and rebalancing; portfolio management; tax efficiency.

  • Cons: Management fees; possible account minimum.

Robo-advisors aren’t an investment themselves but a way for you to invest. These services manage your portfolio: You provide details about your time horizon, goals, and risk tolerance, and, in return, you get a portfolio to match, often built with ETFs in either an IRA or taxable brokerage account. The portfolio will be rebalanced as needed, and — if your money is in a taxable account — robo-advisors perform tax-loss harvesting to lower your tax bill.

Robo-advisor fees are also reasonable compared to a human advisor: generally around 0.25% of your assets under management, plus the expense ratios of the funds used. You could pay under 0.50% for a managed, relatively hands-off portfolio tied to your time horizon and risk tolerance.

» See our picks: Best robo-advisors

4. Dividend stocks

  • Current potential annual return: 2% yield, in addition to the stock's long-term price return.

  • Pros: Generate income; lower volatility than some stocks, such as growth stocks.

  • Cons: Higher risk; requires researching individual stocks; overall return can be lower.

Dividend stocks are individual stocks that pay a steady stream of income to their investors, in the form of a dividend. Dividends can be paid annually, semi-annually, quarterly or monthly; the most common arrangement is quarterly. If you don't need the income, you can reinvest the dividends back into the stock, increasing your overall investment and potentially compounding your returns.

The S&P 500's long-term average dividend yield is 1.83%, according to YCharts

YCharts. S&P 500 Dividend Yield. Accessed Aug 27, 2024.
. This is the dividend-only return — dividend yields are earned in addition to the price return of a stock.

» View our list: Best dividend stocks

5. Dividend ETFs

  • Current potential annual return: 2% yield, in addition to the ETF's long-term price return.

  • Pros: Generate income; diversification.

  • Cons: Higher risk; overall return can be lower.

Dividend ETFs can help reduce or eliminate one of the cons of dividend stocks — the effort involved in researching individual stocks to choose the best options for you. Like general equity ETFs, dividend ETFs essentially pool many dividend stocks together into a single investment.

Similar to dividend stocks, dividends from dividend ETFs can be reinvested back into the fund.

» View our list: Best dividend ETFs

6. Target-date funds

  • Current potential return: Varies based on fund and target date.

  • Pros: Hands-off diversification and rebalancing; portfolio management.

  • Cons: Management fees; investment minimum.

Target-date funds are a set-it-and-forget-it option for investors who have a fixed long-term date in mind: Say you know you want to retire in 20 years. The fund automatically rebalances over time, taking more risk early on and less as you get closer to your set goal. Target-date funds are typically named with the target year — for a retirement that's 20 years away, you might choose a fund with 2044 in its name.

These funds are a fixture of many retirement accounts and similar long-term investment accounts, like college savings plans, but they can also be purchased through most standard brokerage accounts.

7. Real estate

  • Current potential return: Varies.

  • Pros: Potential for high returns; diversification against other investments you own, such as stocks.

  • Cons: High risk; may require time; costs can be high.

When people think of investing in real estate, they generally picture purchasing property — which is certainly one way to approach this. But there are lighter-lift ways to invest in real estate as well, including real estate investment platforms that act as a middle party between investors and properties, and REITs (real estate investment trusts), which are purchased much like stocks or mutual funds.

REITs are companies that own real estate — think shopping malls, warehouses or hotels. REITs typically pay dividends and offer investors exposure to real estate without requiring you to actually own the property directly. There are also REIT ETFs.

» View our list: Best REITs

7. Bond funds

  • Current potential annual return: 4% or more for U.S. government bonds, more for those who take on more risk.

  • Pros: Liquid.

  • Cons: Some risk of principal loss; funds charge expense ratios.

Bonds are loans you make to a company or government. The return is the interest you collect on that loan. As with any loan, they’re not risk-free. For one thing, the borrower could default, although that’s less likely with an investment-grade corporate or municipal bond and downright unlikely with a U.S. government bond.

Through an online brokerage account, you can buy a low-cost index fund or ETF that holds corporate bonds, municipal bonds, U.S. government bonds or a mix of all of the above. This will diversify your investment, as the fund holds many, if not thousands, of bonds.

Most stock brokers offer a fund screener that allows you to sort funds by performance, expense ratio and more. If you're not investing in a retirement account, you might consider a municipal bond fund; municipal bonds are federally tax-exempt, making them a good choice in a taxable account.

» Read more: How to buy bonds

8. Long-term CDs

  • Current potential annual return: Around 5% or more.

  • Pros: Higher interest rate than a savings account; FDIC insurance.

  • Cons: Not liquid; may have minimum deposit requirement; lower potential return than stock market investments.

If you know you won’t need money for a set period and don’t want to take risk, a CD might be a good choice. You can find CDs with terms ranging from three months to five years or more. In general, the longer the term, the higher the interest rate. (You expect more return in exchange for your money being less accessible.)

CDs aren't ideal during a rising interest rate environment because they lock your money away at a fixed rate, with a penalty of three to six months’ interest if you withdraw early. Being stuck in a low-rate vehicle while interest rates are climbing can feel like missing out on a party. But when interest rates are expected to go down — as they are in 2024 — locking in a high rate with a CD can be very appealing.

» View our list: Best CD rates

Long-term investment vs. short-term investments

The difference between long-term and short-term investments is time: A long-term investment could be held for five years, 10 years, 30 years or more, whereas short-term investments may only be held for a few months to a few years.

No matter where you are on your investment journey, time is critical in deciding where to place money. One of the first things to consider is how soon you want your nest egg.

Money you want to access quickly, like an emergency fund, may be best stored in cash, such as in a high-yield savings account or a money market account that allows your money to be readily available.

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