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And then there is cryptocurrency, NFTs, and other digital assets that some consider the best path to increasing your wealth. The question remains: What are the best methods for long-term wealth building?
Ultimately, there are multiple options to form a strong investment portfolio, such as stocks, bonds, mutual funds, and real estate. But the ideal strategy for you will depend on factors like your available funds, risk tolerance, and when you might need to access your money.
How does investing work?
Schulte uses the example of the decade from January 2000 to December 2009, where the S&P 500 lost 0.95%. He emphasizes that if you have a 10-year investment horizon, diversification is crucial, making it difficult to solely invest in a high-risk asset class, resulting in lower expected returns.
Your risk tolerance is another important factor to consider. US stock market and Bitcoin, both considered long-term investments, have distinct risk profiles. Schulte stresses that understanding the amount of risk you can tolerate without selling in panic, helps you choose a suitable long-term investment.
How to build wealth with long-term investments
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Index funds usually have low fees and follow a benchmark, such as the S&P 500. According to Schulte, his preferred long-term investment is a collection of low-cost index funds that invest in the global stock market.
Stark, a senior portfolio manager at MAI Capital Management, suggests that long-term wealth building can be achieved through investing in index mutual funds or ETFs that track indexes like the S&P 500 or S&P 1500. He considers these to be the foundation of a stock portfolio.
Real estate (or REITs)
Schulte highlights real estate as another strong long-term investment option. However, due to low returns after accounting for costs and inflation in a primary home, he prefers investing in publicly traded real estate investment trusts (REITs) for access to this asset class.
REITs consist of a portfolio of income-generating real estate properties, enabling individuals to invest in real estate without direct ownership. Investing in REITs offers the convenience of using a taxable or retirement account without the responsibilities of being a landlord.
According to Schulte, "REITs offer convenient access to global income-generating real estate and have a history of delivering good returns over the long term."
REITs can be purchased through major brokerage firms, or through platforms like Fundrise that offers its own private equity REITs with low fees and minimum investment requirements.
Read More: how to invest in stocks
Short-term investments to keep your money safe
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Financial advisor Michael Mezheritskiy of Milestone Asset Management Group advises individuals who may need access to their cash in a few years to avoid investing these crucial funds in the stock market due to its high volatility. Instead, he recommends considering high-yield money market funds as an alternative.
Money market funds are investments in short-term, easily liquidated assets managed by investment fund companies. Mezheritskiy notes that these funds offer a higher return compared to traditional savings accounts and are fully liquid and insured by the Federal Deposit Insurance Corporation (FDIC).
Online savings accounts
If you require access to your funds in the near future, consider opening a high-yield online savings account. Financial advisor Dallin Cutler of EP Wealth Advisors states that online savings accounts can provide a safe place for your money in the short term, despite the current low interest rate environment.
Online savings accounts often offer competitive interest rates because they have lower overhead costs compared to traditional brick-and-mortar banks. Additionally, most online savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.
Treasury bills
Lastly, consider Certificates of Deposit (CDs) for short-term or near-term savings needs. Keating mentions that CDs generally offer higher returns compared to savings accounts, as you are committing your funds for a set term ranging from three months to five years.
CDs can be obtained from a local bank or an online bank and are insured by the Federal Deposit Insurance Corporation (FDIC), providing peace of mind for the safety of your funds.
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