There are many types of long-term investment to choose from:
Property
Investing in housing, commercial property or land is a popular choice for long-term investors. It can provide growth in capital, as well as regular income, if you decide to rent out the space.
Timing when you buy and sell a property is key, as its value can rise and fall. You’ll want to buy a property that has the potential to increase considerably in value over the set number of years you have in mind. If it does, you could see huge returns from raising the rent on the property, or selling it.
If the property falls in value, this could limit capital growth. If you’re taking out a mortgage, rather than a cash buyer, you’ll also have to consider the interest on the loan, as this can eat into any profits you make.
According to the government’s Moneysmart website, the average return from property investing over the last 10 years has been nearly 6% per year. It considers property to be a medium to high-risk investment, for a term of at least five years.
Stocks & Shares
Buying and selling stocks and shares, otherwise known as equities, is a way of investing in a company. It allows you to become an owner of a small piece of a large company and receive a portion of their profits. You may also earn the right to vote on share in the profits and who is employed to direct the business.
Investing in stocks and shares offers capital growth and provides income in the form of dividends. As share prices fluctuate daily, they can be considered a volatile short-term investment. However, investing in shares in the long-term allows more time for a company’s profits to grow and its shares to increase in value.
This type of investment is high-risk but comes with the potential for huge returns. It is considered more high-risk than buying bonds because, for example, if a company goes bust stockholders have no guarantee of getting their money back, unlike bondholders. Moneysmart suggests a term of at least five years on this type of investment. It says the average return from Australian shares over the last 10 years has been 6.5% per year.
Bonds
If you buy bonds from a company, you are loaning it money which it will pay you back with interest. This type of investment is generally viewed as safe as bondholders are often prioritised for repayment over shareholders. However, lower-risk investments typically bring lower returns compared to the high-risk variety, and this is the case for bonds.
Corporate and government bonds usually offer fixed-rate interest fees on your cash. However, the price of a bond can rise if the business is performing well. If there’s a high risk of it defaulting on its loans, your returns could suffer.
