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Making the right long-term investment can pay dividends – literally. While short-term investments can produce high yields over a short period, they can be associated with increased risk. As Kate Howells, wealth manager at BRI Wealth Management, told Forbes last year: “A golden rule of investing is that you need to be in it for the long haul”. For those interested in investing for the long term, or supplementing their long-term investment strategy, we have analysed key long-term investment options to help boost your investment portfolio.
Property
Bricks and mortar have earned a solid reputation as long-term investments. But a hike in interest rates and an austere economic forecast have served to make property less attractive in recent times. Per a report by Money Week in December: “Rising interest rates and higher mortgage pricing already appear to be feeding into the housing market with both Nationwide and Halifax reporting slowing annual price growth and monthly declines in their recent indices.”
There are clear upsides to real estate investments, but there are pitfalls too. The illiquid nature of the asset can make it difficult to retrieve the invested capital in a timely manner. Selling a property will usually be associated with time and cost, including the employment of lawyers and brokers. This is not to mention that the sale of the asset can be a hostage to fortune if the market conditions aren’t there.
Investors are also said to be steering clear of property funds. Data from the Investment Association shows a net outflow from property funds of over £350 million in the third quarter of 2022. The recessionary outlook bodes badly for the near-term prospects of property funds. As Josef Licsauer of Hargreaves Landsdown writes: “The performance of property funds usually depends on how the economy’s doing. In good times demand for property increases. This pushes up rents and property prices and encourages more construction. During slowdowns or recessions, the opposite happens.”
Fixed Income / Structured Investments
Structured notes are a good long-term investment because they offer the potential to generate higher returns than traditional investments.
A structured product is a financial investment where the returns and risk are defined at the outset, thereby providing known outcomes and all within a set maximum term i.e. the product has a start date and an end date.
Structured products are linked to the performance of an underlying asset; these are usually stocks or indices like the FTSE 100 or a combination of indices like the FTSE 100 and EURO STOXX 50, for example. The investment offers you exposure to the financial markets with a level of protection you wouldn’t have if you invested directly.
Structured products are designed to match a range of investment strategies and views. The returns can either be in the form of a regular income during the term of the product or capital growth paid at the maturity of the product.
They are also typically considered to be a lower-risk investment because of their fixed return rate and the fact that they are often backed by a large financial institution. Structured notes can also provide exposure to a wide variety of assets, including stocks, bonds, commodities, and currencies.
Investing in structured notes over the long term gives investors the opportunity to benefit from the potential for capital gains and the opportunity to diversify their portfolio.
Equities and Mutual Funds
Equities are the shares that make up a company’s ownership. Shares can be purchased directly or through mutual funds.
Mutual Funds have in recent times emerged as the more popular method of investing in equities. Analysts point to the value-added of professional management of the funds, diversified risk and the high-liquidity as among the foremost pull factors.
Looking forward analysts are bullish about the ability of equities to overcome near-term market difficulties. In their Q1 2023 Equity Market Outlook, BlackRock noted the resilience of equities against a turbulent market atmosphere. They reported that: “With inflation remaining elevated and the Fed intent on batting it down with higher interest rates, we see the equity bounces as bear market rallies rather than the start of a new bull trend ― for now. Such ‘speedbumps’ are not uncommon on the path to solid longer-term returns.”
With a view to the FTSE 100, analysts remain largely confident in the capacity of equities to continue to perform even in the event of interest hikes or the onset of a further inflationary period. As the Financial Times reports: “Higher than expected inflation is generally bad for bonds but not necessarily for equities since some companies — such as big operators in essential industries — can pass on cost increases.”
With a view to withstanding potential or actual market turbulence ahead, a number of advisors are cautioning buyers to invest in multinational companies. These large firms are said to be able to weather hazards more robustly than smaller businesses might.
The FTSE 100 had, as of January, returned to pre-pandemic levels after an over 8% slump. Though we can’t be sure that stock market growth will continue unabated, it is clear that the market has largely recovered and is presently enjoying some growth.
Gold
Gold is renowned for its ability to retain value – and not without reason. The precious metal’s scarcity and its history of backing currencies – as well as its storied and reliable performance on the markets, has rendered it a go-to for many long-term investors.
The reasons for this are multiple, but foremost amongst them is the precious metal’s capacity to act as a hedge against inflation, the ease with which it can be sold, making it easy to liquidate, and its diversification value.
The Royal Mint clearly sets out how gold can diversify a portfolio and shield it from a downturn:
“If the value of all your shares, property and other investments goes down, the expectation is that the price of gold will not move the same way and may well rise to offset some of your losses. Furthermore, physical gold in your possession has no counterparty risk (unlike savings stored in the account of a bank that may fail, or shares in a company that could go into liquidation), and is therefore viewed as even safer in the event of extreme economic stress.”
With the Russian invasion of Ukraine raging, tensions rising between the USA and China, and an uncertain economic outlook ahead, many investors will be attracted by the enduring stability of gold.
As the old adage goes – it’s not about timing the market, but about time in the market. A diverse portfolio geared toward long-term investments can, in the right circumstances, absorb market downturns and yield dividends for the investor. As the geopolitical outlook continues to be characterised by instability and uncertainty, strong and resilient long-term investments could prove to be a smart bet for 2023.
