Investors have plenty of options when it comes to earning returns on their money. While most people probably think of the stock market when they think of investing, you can also put your money in assets like bonds, real estate, precious metals, cash, and even cryptocurrencies. According to a recent Bankrate survey, Americans said real estate was their first choice for investing money they won’t need for the next decade, while stocks came in second.
Here’s the full rundown of America’s favorite long-term investments:
- Real estate – 29 percent
- Stock market – 26 percent
- Financial investments (savings, CDs) – 17 percent
- Gold or other precious metals – 9 percent
- Bonds – 9 percent
- Bitcoin/cryptocurrency – 6 percent
- None of the above – 3 percent
Here’s what else you need to know about investing in these different asset classes.
Investing in real estate
Real estate was the top choice for long-term investments in the Bankrate survey for the third time in the past four years, despite rising interest rates, which can negatively impact home prices. Americans’ preference for real estate can be at least somewhat explained by their feelings toward their second choice: stocks. Survey respondents cited the stock market’s volatility, intimidating nature and feeling that the market is rigged against individuals as reasons why they did not choose stocks as the best long-term investment.
When it comes to real estate investing, investors can choose to purchase physical properties, such as a house or rental property, or they can purchase funds that invest in real estate. You might also consider a real estate investment trust (REIT), which pays out a large percentage of its income as dividends to shareholders.
The Vanguard Real Estate ETF (VNQ), which invests in REITs and companies that invest in office buildings, hotels and other real estate, had an annual return of 7.3 percent over the past ten years as of November 25, 2023.
Investing in the stock market
According to the Bankrate survey, stocks were the second best choice for long-term investing. More than a third of respondents said the stock market had too much volatility and almost 20 percent said they were intimidated by stocks.
While stocks can be volatile, they have also been one of the best wealth generators over the long term, with annual returns of around 10 percent. Stocks represent a partial ownership stake in real companies, and their value rises and falls with the profits these companies generate for investors.
Here’s how the major stock indexes have performed over the past decade:
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S&P 500: 11.1 percent annualized (as of November 25, 2023)
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Dow Jones Industrial Average: 10.2 percent annualized (as of November 25, 2023)
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Nasdaq Composite: 13 percent annualized (as of September 30, 2023)
Investing in cash and savings
Cash investments such as savings accounts or certificates of deposit were the third choice for the best long-term investment, with nearly 20 percent of respondents choosing it as the best option for money they won’t need for a decade or more. The response is somewhat surprising, as it is almost certain that cash will lose value over time thanks to the eroding impact of inflation.
Although rates for savings accounts and CDs have increased recently, they are still not good long-term investments and may not even keep up with inflation. These types of investments are best reserved for your short-term needs, such as an emergency fund or money you think you’ll need for the next few years or less.
Cash as an investment has yielded virtually nothing in recent years, because historically low interest rates have not provided savers with an adequate return on their cash.
Investing in gold and other precious metals
Investing in gold or other precious metals such as silver or platinum may be of particular interest now as investors try to combat the impact of high inflation. Nearly 10 percent of respondents in the Bankrate survey selected gold or precious metals as the best long-term investment, which makes sense given concerns about inflation.
Gold has long been seen as a way to protect your portfolio against inflation, acting as a reliable store of value over time. But it’s not always as easy as it seems. The SPDR Gold Shares ETF (GLD), a fund physically backed by gold, has given investors a ten-year annualized return of -0.28 percent as of November 28, 2023. This means that it has failed to maintain its value throughout the period. over the past decade and has certainly not kept pace with inflation in that time.
Even over the short term, gold is not always a perfect remedy for inflation problems. The popular gold fund delivered a return of -4.2 percent in 2023 and has fallen more than 5 percent in 2023 as of November 28, even though inflation has risen to the highest level in forty years.
If you are interested in investing in gold or other precious metals, it is best to keep it to a small percentage of your overall portfolio. Gold has no intrinsic value, meaning it returns nothing to its owners. If you own an ounce of gold today, you will still own an ounce of gold in 100 years, while assets such as stocks can increase in value as companies generate more profits.
Investing in bonds
Bonds have long been a staple of most investors’ portfolios, so it’s not surprising that 9 percent of Bankrate survey respondents chose bonds as their favorite long-term investment.
Most financial advisors recommend keeping a mix of stocks and bonds at the core of your portfolio. If you’re far from a financial goal like retirement, more of your portfolio will be allocated to risky assets like stocks. As you get closer to your goal, your portfolio allocation should shift more toward bonds or assets that are considered less risky.
This strategy has come under pressure in 2023 as both stocks and bonds have been hurt by the sharp rise in interest rates. Bond prices fall as interest rates rise, so the rise in interest rates has been difficult for bond investors.
However, in recent decades, bond prices have largely been in a bull market as interest rates fell from the very high levels of the early 1980s. The prolonged decline in interest rates acted as a huge tailwind for bond investors and helped them earn attractive returns.
Investing in cryptocurrency
According to the Bankrate survey, investors’ least favorite choices for a long-term investment were Bitcoin and other cryptocurrencies. Only 6 percent of people think cryptocurrencies will be the best long-term investment in the next decade.
Cryptocurrencies have been extremely volatile since their inception, with many cryptocurrencies initially rising substantially before falling back to earth. The two most popular coins, Bitcoin and Ethereum, are each down about 75 percent from their all-time highs in 2023.
While many reasons have been given why cryptocurrencies could be successful, the truth is that they are an unproven and speculative asset. Like gold, they have no intrinsic value, so you are dependent on another investor paying more for a coin than you do so that your trade can be profitable. This is sometimes called the “greater fool theory” of investing, because you need an even greater fool to join in for the investment to be successful.
In short
Investors have many choices when it comes to investing for their future. Make sure you understand each asset class you choose to invest in and pay special attention to its long-term performance. Almost any investment can do well for a short period of time, but for investors it is ultimately the long term that counts.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
