7 Best Long-Term Investments to Make - SmartAsset (2024)

As you take steps to meet your financial goals, it is always important to keep in mind long-term planning. Long-term investment planning ignores the daily fluctuations of the market and, instead, focuses on strategic steps that offer significant value over time. These steps seek to maximize tax benefits and use the power of compound interest to help you meet your goals. Here’s a breakdown of the best long-term investments you should make.

A financial advisor can help you create a financial plan for your investment needs and goals.

7 Best Long-Term Investments

Each of the eight following long-term investments offers unique benefits for different types of investors. While not all of them will be suitable to every retail investor, adding even one or two of them to your investment portfolio can provide outstanding results over time.

Employer-Sponsored Retirement Plans

Investing for the long-term is incredibly simple with an employer-sponsored retirement plan, like a 401(k), 403(b) or 457. These plans allow eligible employees to contribute money to their accounts automatically from their regular paycheck. You don’t have to remember to make a contribution or where to send the money. The company handles everything for you. Each of these accounts allows investors to contribute up to $22,500 per year (plus $6,500 extra for employees 50 and older).

Some companies also offer to match contributions up to certain limits each pay period. For example, a company with a 100% match up to the first 6% will match every dollar that an employee contributes up to the first 6% every pay period. These matching contributions offer an immediate boost to your account balance and their value compounds over time.

Traditional or Roth IRAs

Contributing to an individual retirement account (IRA) is available to any taxpayer with earned income, like a W-2 paycheck. IRAs offer tax-free growth until you make withdrawals in retirement. Traditional IRAs provide a tax deduction when you meet eligibility requirements, however, withdrawals are considered ordinary income. Roth IRA contributions are made with after-tax money, but all of the money is tax-free in retirement.

IRAs have an annual contribution limit of $6,000, and investors aged 50 or higher can contribute an extra $1,000 each year. Although you must have earned income to be eligible, non-working spouses may also contribute each year if their spouse is eligible.

Health Savings Accounts

Healthcare expenses increase faster than inflation, so investors need to figure out how to cover medical expenses later in life. One way that investors can save for those medical expenses is through a health savings account (HSA). These investment accounts offer tax deductions today, tax-deferred growth and tax-free withdrawals for eligible expenses.

In order to invest through a health savings account, you must have a high-deductible medical plan. These insurance plans offer a lower premium, but the insured needs to cover a higher portion of health expenses before coverage begins. For people who are healthy and don’t spend much on medical expenses each year, an HSA offers a valuable way to save for the long term.

Alternative Investments

When assembling your portfolio of the best long-term investments, it pays to look beyond stocks and bonds. Alternative assets, such as rare books, antique musical instruments, artworkand other collectibles, provide an opportunity for growth while also playing an important role in diversifying your portfolio. Many alternative assets are also non-correlated assets, so they tend to move differently than the stock market to reduce volatility.

Rental Properties

Investing in real estate is a popular path to personal wealth. Through rental properties, investors are able to receive tenant income today and benefit from the long-term appreciation of the property. Monthly profits may be small initially, but they will increase over time, providing more income from your initial investment.

Additionally, real estate investors are able to deduct the property’s depreciation to minimize taxes on their rental income. When you sell the property, you can defer your gains by reinvesting the sale proceeds into another rental property through a 1031 Exchange.

Brokerage Account

For investors who want to invest for the long-term, but still want access to their money today, a brokerage account is your best option. Through a brokerage account, you can invest in a wide array of investments without worrying about annual contribution limits. The money can be withdrawn without penalty, but you have to pay taxes on gains from any investment you sell. Additionally, you’ll also have to include any capital gains or dividend distributions on your tax returns.

When you pass away, your beneficiaries receive a step-up in basis on the value of your assets. This means that they can sell your brokerage account investments the next day and not have to worry about capital gains taxes.

Cash-Value Life Insurance

Life insurance serves to protect your family financially when you pass away. While term life insurance covers short-term risks, cash value life insurance also benefits you in the long term. The money within a cash value life insurance policy can be invested and grows tax-free. The increase in value – assuming the money was invested wisely – may also increase the death benefit for your beneficiaries.

Cash value life insurance policies allow investors to withdraw money as a loan. Some policyholders use the cash as temporary financing without the traditional credit check or underwriting that a bank requires. However, many investors use cash value life insurance as long-term investments that provide a source of income down the road.

Bottom Line

Investors who have their focus on the long-term should take advantage of the benefits from a variety of account types and investments. Each investment provides specific benefits that can bring you another step closer to meeting your goals. While no single investment can meet all of your needs, creating a comprehensive plan using a variety of investments offers a solid plan that also seeks to reduce risk to your portfolio.

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