In the world of finances, long-term investments are the most reliable forms of wealth creation, used for centuries. However, long-term investments also carry certain risks and require a combination of luck and skill.
Therefore, the better prepared you are, the greater your chances of making a profit will be. As a complete beginner, the following guide is a great introduction to the foundation of long-term investments.
So without further ado, here is our guide to long-term investments for beginners.
In This Guide
Long Term Investments for Beginners
What Are Long-Term Investments?
Let’s start at the beginning with the most fundamental factors of long-term investing. As the name entails, it’s investments that you place with long-term goals, in comparison to day trading, for example. In general, when long-term investing you put up goals that span several years.
Now, that’s quite a vague description but it’s also the truth. Anything that you can place capital into today and then see grow over time, can be a long-term investment. That ranges from popular financial instruments such as stocks, bonds, and cryptocurrencies to real estate and businesses. Even a regular savings account with an interest rate can be considered a long-term investment.
In the following guide, we’ll mainly focus on financial instruments and the brokers that offer them. But when suitable, we’ll provide examples and comparisons to other popular investment strategies and plans.
Popular Investments in 2024
As mentioned, you can place capital with long-term goals in a range of different markets, assets, and instruments. Below, our investment experts have provided us insight into the most popular forms of investments today.
- Stocks
Stocks are one of the – if not the single most – popular long-term investments. As you probably know, a stock is a bit of a company that gives the owner a share of the company’s profits.
Stocks are listed on stock exchanges around the world such as the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE). Furthermore, stocks have been traded in Europe since the 16th and 17th centuries, making them some of the oldest investment options out there.
The reason stocks are so popular as investments are that they are relatively easy to analyze, there are tens of thousands of them to choose between, and they provide great benefits such as yearly dividends.
- Indices
Indices are closely related to stocks and are also popular among long-term investors. An index is a way to measure the value of a collection of stocks. The most popular indices are the ones that consist of the main stocks on a stock exchange.
For example, the FTSE 100 which consists of the 100 biggest companies on the LSE, or the Dow Jones Industrial Average which consists of 30 of the most influential companies in the United States (listed on the NYSE).
- Exchange-Traded Funds (ETFs)
ETFs are financial instruments that are traded and sold on the stock exchange. However, compared to stocks or indices, an ETF can consist of a range of different instruments. An ETF can hold stocks, bonds, and currencies, and even commodities such as gold or oil.
Due to this unique characteristic, ETFs are varied and can pose a whole array of different advantages and disadvantages. Subsequently, it’s a form of long-term investment that attracts a lot of different people and investors.
- Cryptocurrencies
Cryptocurrencies are the latest instruments to take the long-term investment market by storm. For many years, Bitcoin and other cryptocurrencies were considered nothing more than a passing trend for people opposing the government. Today, things are different, and after Bitcoin’s value having gained thousands of percent over the last 10 years, it’s clearly one of the most profitable long-term opportunities ever.
With that being said, cryptocurrencies are still a new concept and no one knows where the market is headed. It’s also a completely unregulated market with certain limitations and additional risks that you won’t find elsewhere. Therefore, extra caution is advisable when investing in or trading cryptocurrencies.
Check out the list of the best cryptocurrency brokers in the UK in out other guide.
Other Markets:
In addition, there are other popular ways to invest capital with long-term goals. And as mentioned at the beginning of this guide, we are going to mention some of the markets that aren’t available through brokers and online services.
- Real Estate
Real estate is for many the first market that comes to mind when talking about long-term investments. It’s also very popular considering the vast number of people that own their own homes.
It also happens to be one of the potentially most profitable markets for those that understand it. Look at a person like Donald Trump that has made most of his fortune from real estate.
Naturally, real estate requires large amounts of capital and isn’t very beginner-friendly, besides owning your own home. As a beginner, stocks, cryptocurrencies, and ETFs are much better options.
- Businesses
People invest in businesses all the time. And yes, most business investments are made through stock purchases but you can invest in smaller companies using other methods as well.
- Commodities
Commodities – and especially commodity futures contracts – can also be used for longer investments. Technically, commodities can also be invested in physically, ie. you buy gold bars that you hold onto until they’ve grown enough in value that you can sell them for a profit.
How To Find a Long-Term Broker in the UK
Most people that are into long-term investment use a broker to place their investments. There are other ways you can do it, such as buy stocks directly from a company. But, generally speaking, stocks and other instruments are purchased through brokers.
Now, there are different types of brokers for these investments. There is a big chance that your regular bank offers brokerage services and has direct access to the stock exchange where they can buy and sell stocks for you.
Back in the days, all instruments were traded on the exchange’s trading floors but today, as with most things, the trading and investing are mainly handled online.
Most retail investors rely on online brokerage services – either offered by their banks or by brokers. Some brokers allow you to trade directly with the exchanges in question, often called Direct Market Access (DMA) But most of them provide stocks and other instruments in derivatives such as Contract for Difference (CFDs), which aren’t actually suitable for long-term investing.
The way you’re planning on investing will affect your choice of a broker but there are a plethora of other factors that also play a part in the decision making. As a beginner, it might feel overwhelming having to pick a broker, which is why we started this website.
We have tested, audited, and reviewed all the main brokers in the UK, both for trading and investing, and listed them in unbiased comparisons. To ensure that we always remain unbiased we’ve included millions of user reviews from Trustpilot, Google Play, the App Store, etc.
Our List of the Best Trading and Investment Apps in the UK also can help you to choose your app that’s right for you.
So to answer the question: the easiest way to find a long-term investment app, platform and broker is to use the many resources we provide. Our goal is to make it easy and safe to find a reliable broker that you can use for many years to come and that will help bring out your full potential.
Read full IronFX review in our other article.
Investments VS. Day Trading
Those who are new to trading are often quite confused about the different trading strategies and terms used to describe methods of investing. It seems especially important to understand the difference between long-term investing and day trading.
Luckily, the difference is very easy and it can be found in the names of the strategies. As the name entails, day trading is a method of trading where you trade on the daily. The concept involves opening and closing several positions every day, seldom keeping the positions open for more than a few minutes.
Long-term investing, on the other hand, involves analyzing assets with a several months or year-long plan. Your goal is to invest in an instrument today and then sell it a while from now when the instrument has increased in value.
Swing Trading
Swing trading is another trading strategy that falls in between the two above mentioned. Similar to day trading, you open and close positions on a regular basis, keeping your positions open for several days and even a few weeks at a time.
When it comes to analyzing the instruments you want to buy or sell, you use strategies similar to long-term investing.
Long-Term Investment Strategies
We understand that a lot of you are looking for investment tips and guides, and we’re happy to help. Although, since this guide is aimed at beginners with little to no experience, we will keep our tips basic.
For more advanced trading and investment tips, please refer to our advanced trading guides listed in the top menu.
Education
The most important investment strategy is not really a strategy at all but rather a routine that you have to adopt. As known, all forms of investing and trading are difficult to master. Therefore, it is absolutely crucial that you never stop learning and educating yourself.
Even the best investors in the world are constantly improving their knowledge and fine-tuning their strategies to prompt the best results possible.
As a beginner, you should start with the absolute basics, for instance, this guide and books such as “Investing for Dummies”. We also highly recommend that you make use of your broker’s demo account and educational material since this will give you a clear advantage when you start investing with real funds.
Diversification
Another equally crucial investment strategy for beginners is to always diversify your portfolio. As the saying goes: “Don’t put all your eggs in one basket”. And it’s never been more relevant than when it comes to trading and investments.
A diversified portfolio will be one of your greatest safety measures throughout your entire investment career. Naturally, diversification means that you place investments in a range of different instruments and preferably different markets.
This will protect you from losing all your funds in case a specific company goes bankrupt and the stocks become useless, or if an industry is hit by a crisis that stabilizes the instruments in that industry.
Risk Management
Lastly, we want to emphasize the importance of applying risk management to all your analytic work and active investing. You always have to consider the risks of opening a new position, even when it feels like you’ve found a fail-safe opportunity.
Risk management will look a bit different depending on the instruments you’re investing in, the broker you’re using, and the goals you have with your investments. For example, stop-loss should be added to most positions to limit you from unnecessary losses. However, stop-losses are best for short-term positions and day trading.
As an investor, the best way to manage risk is to be active with your portfolio. Don’t be afraid to sell an instrument if you feel the need, preferably to invest in another instrument.
Furthermore, risk management includes funds management, ie. you need to keep a strict budget that does not limit the rest of your life financially. You’re never supposed to invest or trade using funds that you cannot afford to lose, meaning you have to pay rent, all your bills and have money for food and unexpected expenses before you even consider investing.
Summary
By now, we hope that you have a better understanding of what long-term investing means. As mentioned several times, this guide was aimed at beginners, which is why the information in it is rather basic. Just please be aware that we provide a range of other guides aimed at traders and investors of all kinds.
The backbone of this site is our broker recommendations and unbiased comparisons. We’ve created these to help make the UK trading market safer as well as ensure that all UK traders can find the best broker for their specific needs.
We invite you to browse through the site to see if you find suitable guides that can help you improve your chances of making a profit. And if you have any questions, you’re more than welcome to reach out to us and one of our experts will get back to you shortly.
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2 Replies to “Long Term Investments for Beginners”
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25,000 hours of testing 70+ brokers. Our recommended broker is Pepperstone.
Our recommended broker is Pepperstone.
Hello. I want to invest in the share market, and hence need to open a demo/trading account. I am planning to invest in the stock market occasionally. What is the best broker to start?
eToro is the more suitable broker for beginners, also you can start with a demo with them