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Investors have plenty of options when it comes to earning a return on their money. While most people likely think of the stock market when investing comes to mind, you can also put your money in assets such as bonds, real estate, precious metals, cash and even cryptocurrencies. According to a recent Bankrate survey, Americans said that real estate was their top choice for investing money they won’t need for at least 10 years, while stocks came in second.
Here’s the full breakdown of American’s most favorite long-term investments:
- Real estate – 29 percent
- Stock market – 26 percent
- Cash 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 should know about investing in these different asset classes.
Real estate investing
Real estate was the top choice for long-term investments in the Bankrate survey for the third time in the last four years despite rising interest rates, which can negatively impact housing prices. Americans’ preference for real estate may be at least somewhat explained by their feelings toward their second choice: stocks. The survey’s respondents cited the stock market’s volatility, intimidating nature and a feeling that the market is rigged against individuals as reasons why they didn’t choose stocks as the top long-term investment.
When it comes to real estate investing, investors can choose to buy physical properties such as a home or rental property, or they can purchase funds that invest in real estate. You might also consider a real estate investment trust, or REIT, which pays out a large percentage of its income as a dividend to shareholders.
The Vanguard Real Estate ETF (VNQ), which invests in REITs and companies that invest in office buildings, hotels and other real property, delivered annualized returns of 7.3 percent over the past decade as of Nov. 25, 2022.
Stock market investing
Stocks were the second-best choice for long-term investing, according to the Bankrate survey, with more than one-third of respondents saying that the stock market had too much volatility and almost 20 percent saying they were intimidated by stocks.
While stocks can be volatile, they’ve also been one of the best wealth generators over the long term, earning annual returns of about 10 percent over time. Stocks represent partial ownership stakes in real businesses and their value rises and falls with the profits those businesses generate for investors.
Here’s how major stock market indexes have fared over the last 10 years:
- S&P 500: 11.1 percent annualized (as of Nov. 25, 2022)
- Dow Jones Industrial Average: 10.2 percent annualized (as of Nov. 25, 2022)
- Nasdaq Composite: 13 percent annualized (as of Sept. 30, 2022)
Investments 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 10 years or more. The response is somewhat surprising because cash is nearly certain to lose value over time thanks to the eroding impact of inflation.
While the rates offered on savings accounts and CDs have risen recently, they’re still not likely to be good long-term investments and may even fail to 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 in the next few years or less.
Cash as an investment has returned almost nothing in recent years as record-low interest rates failed to give savers 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 the inflation concerns.
Gold has long been thought of as a way to protect your portfolio from 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), which is a fund physically backed by gold, has given investors a 10-year annualized return of -0.28 percent as of Nov. 28, 2022. This means it has failed to hold its value over the past decade and certainly hasn’t kept pace with inflation over that time.
Even over short-term time horizons, gold isn’t always a perfect cure for inflation’s woes. The popular gold fund returned -4.2 percent in 2021 and is down more than 5 percent in 2022 as of Nov. 28, even as inflation has soared to its highest level in 40 years.
If you’re interested in investing in gold or other precious metals, it’s best to keep it at a small percentage of your overall portfolio. Gold has no intrinsic value, meaning it doesn’t produce anything for its owners. If you own an ounce of gold today, you’ll still have an ounce of gold 100 years from now, whereas assets such as stocks can increase in value as companies produce more in earnings.
Investing in bonds
Bonds have long been a staple of most investors’ portfolios, so it’s not surprising that 9 percent of the Bankrate survey’s respondents picked bonds as their preferred long-term investment.
Most financial advisors recommend holding some combination of stocks and bonds as the core of your portfolio. When you’re far away from a financial goal such as retirement, more of your portfolio will be allocated toward risky assets like stocks. As you get closer to your goal, your portfolio’s allocation should shift more towards bonds or assets considered less risky.
In 2022, this strategy has come under pressure as both stocks and bonds have been hurt by the sharp rise in interest rates. Bond prices fall as interest rates rise, so the increase in rates has been difficult for bond investors.
However, over the past several decades, bond prices have largely experienced a bull market, as interest rates fell from the very high levels seen in the early 1980s. The long-term decline in interest rates acted as a massive tailwind for bond investors and helped them achieve attractive returns.
Investing in cryptocurrency
Investors’ least favorite choice for a long-term investment was Bitcoin and other cryptocurrencies, according to the Bankrate survey. Just 6 percent of people think cryptocurrencies will be the best long-term investment over the next 10 years.
Cryptocurrencies have been extremely volatile since being introduced, with many rising substantially initially before falling back to earth. The two most popular coins, Bitcoin and Ethereum, are each down about 75 percent from their all-time highs reached in 2021.
While many reasons have been given for why cryptocurrencies could be successful, the truth is that they’re an unproven and speculative asset. Like gold, they have no intrinsic value so you’re reliant upon another investor paying more for a coin than you did in order for your trade to be profitable. This is sometimes referred to as the “greater fool theory” of investing because you need an even greater fool to come along in order for the investment to be successful.
Investors have many choices when it comes to investing for their future. Be sure to understand any asset class that you choose to invest in and pay special attention to its long-term performance. Nearly any investment can do well for a short period of time, but the long-term is ultimately what matters for investors.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.