Wed. Dec 8th, 2021

Best long-term investments in November 2021

One of the best ways to secure your financial future is to invest, and one of the best ways to invest is over the long term. With the ups and downs that came during the COVID-19 pandemic, it may have been tempting to chase quick returns in 2021. But the economy is still recovering, and it’s more important than ever to focus on long-term investing while sticking to your game plan.
There are many people who think of investing as an easy way to make a short-term score in the markets, but it’s long-term investing where regular investors can really build wealth. By thinking and investing long term, you can meet your financial goals and increase your financial security.
Investors today have many ways to invest their money and can choose the level of risk that they’re willing to take to meet their needs. You can opt for very safe options such as a certificate of deposit (CD) or dial up the risk – and the potential return! – with investments such as stocks and stock mutual funds or ETFs.
Or you can do a little of everything, diversifying so that you have a portfolio that tends to do well in almost any investment environment.
Here are the best long-term investments in November:
Growth stocks
Stock funds
Bond funds
Dividend stocks
Target-date funds
Real estate
Small-cap stocks
Overview: Top long-term investments in November 2021
1. Growth stocks
In the world of stock investing, growth stocks are the Ferraris. They promise high growth and along with it, high investment returns. Growth stocks are often tech companies, but they don’t have to be. They generally plow all their profits back into the business, so they rarely pay out a dividend, at least not until their growth slows.
Growth stocks can be risky because often investors will pay a lot for the stock relative to the company’s earnings. So when a bear market or a recession arrives, these stocks can lose a lot of value very quickly. It’s like their sudden popularity disappears in an instant. However, growth stocks have been some of the best performers over time.
If you’re going to buy individual growth stocks, you’ll want to analyze the company carefully, and that can take a lot of time. And because of the volatility in growth stocks, you’ll want to have a high risk tolerance or commit to holding the stocks for at least three to five years.
Risk/reward: Growth stocks are among the riskier segments of the market because investors are willing to pay a lot for them. So when tough times arrive, these stocks can plummet. That said, the world’s biggest companies have been high-growth companies, so the reward is potentially limitless if you can find the right company.
2. Stock funds
If you’re not quite up for spending the time and effort analyzing individual stocks, then a stock fund – either an ETF or a mutual fund – can be a great option. If you buy a broadly diversified fund – such as an S&P 500 index fund or a Nasdaq-100 index fund – you’re going to get many high-growth stocks as well as many others. But you’ll have a diversified and safer set of companies than if you own just a few individual stocks.
A stock fund is an excellent choice for an investor who wants to be more aggressive but doesn’t have the time or desire to make investing a full-time hobby. And by buying a stock fund, you’ll get the weighted average return of all the companies in the fund, so the fund will generally be less volatile than if you had held just a few stocks.
If you buy a fund that’s not broadly diversified – for example, a fund based on one industry – be aware that your fund will be less diversified than one based on a broad index such as the S&P 500. So if you purchased a fund based on the automotive industry, it may have a lot of exposure to oil prices. If oil prices rise, then it’s likely that many of the stocks in the fund could take a hit.
Risk/reward: A stock fund is less risky than buying individual positions and less work, too. But it can still move quite a bit in any given year, perhaps losing as much as 30 percent or even gaining 30 percent in some of its more extreme years.
That said, a stock fund is going to be less work to own and follow than individual stocks, but because you own more companies – and not all of them are going to excel in any given year – your returns should be more stable. With a stock fund you’ll also have plenty of potential upside. Here are some of the best index funds.
3. Bond funds
A bond fund – either as a mutual fund or ETF – contains many bonds from a variety of issuers. Bond funds are typically categorized by the type of bond in the fund – the bond’s duration, its riskiness, the issuer (corporate, municipality or federal government) and other factors. So if you’re looking for a bond fund, there’s a variety of fund choices to meet your needs.
When a company or government issues a bond, it agrees to pay the bond’s owner a set amount of interest annually. At the end of the bond’s term, the issuer repays the principal amount of the bond, and the bond is redeemed.
A bond can be one of the safer investments, and bonds become even safer as part of a fund. Because a fund might own hundreds of bond types, across many different issuers, it diversifies its holdings and lessens the impact on the portfolio of any one bond defaulting.
Risk/reward: While bonds can fluctuate, a bond fund will remain relatively stable, though it may move in response to movements in the prevailing interest rate. Bonds are considered safe, relative to stocks, but not all issuers are the same. Government issuers, especially the federal government, are considered quite safe, while the riskiness of corporate issuers can range from slightly less to much more risky.
The return on a bond or bond fund is typically much less than it would be on a stock fund, perhaps 4 to 5 percent annually but less on government bonds. It’s also much less risky.
4. Dividend stocks
Where growth stocks are the sports cars of the stock world, dividend stocks are sedans – they can achieve solid returns but they’re unlikely to speed higher as fast as growth stocks.
A dividend stock is simply one that pays a dividend — a regular cash payout. Many stocks offer a dividend, but they’re more typically found among older, more mature companies that have a lesser need for their cash. Dividend stocks are popular among older investors because they produce a regular income, and the best stocks grow that dividend over time, so you can earn more than you would with the fixed payout of a bond. REITs are one popular form of dividend stock.
Risk/reward: While dividend stocks tend to be less volatile than growth stocks, don’t assume they won’t rise and fall significantly, especially if the stock market enters a rough period. However, a dividend-paying company is usually more mature and established than a growth company and so it’s generally considered safer. That said, if a dividend-paying company doesn’t earn enough to pay its dividend, it will cut the payout, and its stock may plummet as a result.
The big appeal of a dividend stock is the payout, and some of the top companies pay 2 or 3 percent annually, sometimes more. But importantly they can raise their payouts 8 or 10 percent per year for long periods of time, so you’ll get a pay raise, typically each year. The returns here can be high, but won’t usually be as great as with growth stocks. And if you’d prefer to go with a dividend stock fund so that you can own a diversified set of stocks, you’ll find plenty available.
5. Target-date funds
Target-date funds are a great option if you don’t want to manage a portfolio yourself. These funds become more conservative as you age, so that your portfolio is safer as you approach retirement, when you’ll need the money. These funds gradually shift your investments from more aggressive stocks to more conservative bonds as your target date nears.
Target-date funds are a popular choice in many workplace 401(k) plans, though you can buy them outside of those plans, too. You pick your retirement year and the fund does the rest.
Risk/reward: Target-date funds will have many of the same risks as stock funds or bond funds, since it’s really just a combination of the two. If your target date is decades away, your fund will own a higher proportion of stocks, meaning it will be more volatile at first. As your target date nears, the fund will shift toward bonds, so it will fluctuate less but also earn less.
Since a target-date fund gradually moves toward more bonds over time, it will typically start to underperform the stock market by a growing amount. You’re sacrificing return for safety. And since bonds are yielding less and less these days, you have a higher risk of outliving your money.
To avoid this risk, some financial advisors recommend buying a target-date fund that’s five or 10 years after when you actually plan to retire so that you’ll have the extra growth from stocks.
6. Real estate
In many ways, real estate is the prototypical long-term investment. It takes a good bit of money to get started, the commissions are quite high, and the returns often come from holding an asset for a long time and rarely over just a few years. Still, real estate was favorite long-term investment in 2021, according to one Bankrate study.
Real estate can be an attractive investment, in part because you can borrow the bank’s money for most of the investment and then pay it back over time. That’s especially popular as interest rates sit near attractive lows. For those who want to be their own boss, owning a property gives them that opportunity, and there are numerous tax laws that benefit owners of property especially.
That said, while real estate is often considered a passive investment, you may have to do quite a bit of active management if you’re renting the property.
Risk/reward: Any time you’re borrowing significant amounts of money, you’re putting extra stress on an investment turning out well. But even if you buy real estate with all cash, you’ll have a lot of money tied up in one asset, and that lack of diversification can create problems if something happens to the asset. And even if you don’t have a tenant for the property, you’ll need to keep paying the mortgage and other maintenance costs out of your own pocket.
While the risks can be high, the rewards can be quite high as well. If you’ve selected a good property and manage it well, you can earn many times your investment if you’re willing to hold the asset over time. And if you pay off the mortgage on a property, you can enjoy greater stability and cash flow, which makes rental property an attractive option for older investors. (Here are 10 tips for buying rental property.)
7. Small-cap stocks
Investors’ interest in small-cap stocks – the stocks of relatively small companies – can mainly be attributed to the fact that they have the potential to grow quickly or capitalize on an emerging market over time. In fact, retail giant began as a small-cap stock, and made investors who held on to the stock very rich indeed. Small-cap stocks are often also high-growth stocks, but not always.
Like high-growth stocks, small-cap stocks tend to be riskier. Small companies are just more risky in general, because they have fewer financial resources, less access to capital markets and less power in their markets (less brand recognition, for example). But well-run companies can do very well for investors, especially if they can continue growing and gaining scale.
Like growth stocks, investors will often pay a lot for the earnings of a small-cap stock, especially if it has the potential to grow or become a leading company someday. And this high price tag on a company means that small-cap stocks may fall quickly during a tough spot in the market.
If you’re going to buy individual companies, you must be able to analyze them, and that requires time and effort. So buying small companies is not for everyone. (You may also want to consider some of the best small-cap ETFs.)
Risk/reward: Small-cap companies can be quite volatile, and may fluctuate dramatically from year to year. On top of the price movement, the business is generally less established than a larger company and has fewer financial resources. So small-caps are considered to have more business risk than medium and large companies.
The reward for finding a successful small-cap stock is immense, and you could easily find 20 percent annual returns or more for decades if you’re able to buy a true hidden gem such as before anyone can really see how successful it might eventually become.