There are some key rules of investing. First, no investment is ever guaranteed to grow in value. Secondly, just because an asset has grown in value in the past doesn’t mean it will continue to do so in the future.
But that doesn’t mean that you can’t increase your odds of seeing your investments grow in worth over time. There are certain asset classes that are more likely than others to increase in value.
Here are some suggestions from financial pros and investors. Just remember – while these assets have grown in value steadily in the past, investing in them today doesn’t guarantee success. It just increases your odds of it.
Brent Dickerson has simple advice for those looking for solid investments – “Buy land, because they aren’t making more of it.”
Dickerson, owner and financial planner at Trinity Wealth Management with offices in Cleveland and Lubbock, Texas, said that no asset comes with a guarantee that it will increase in value. Land, though, has traditionally been one physical asset that does see its worth increase over time, he said.
“Real assets, like land, tend to increase in value over time,” Dickerson said. “Some real assets increase more than others, and at different rates. But as we witness with increasing home and land values, most are on an increasing trajectory.”
Homes, Condos, Apartments and Other Real Estate
Jeremy Torgerson, chief executive officer and founder of Brighton, Colorado-based nVest Advisors, said that real estate tends to rise in value over time, too. Just watch the median home prices released by groups such as the National Association of Realtors. With few exceptions, home values have tended to increase year after year.
This makes investing in real estate a relatively safe bet, though, as always, there are no guarantees. You might invest in a home right before a downturn in the housing market, causing your home’s value to drop. You might invest in a home in a neighborhood that, for whatever reason, isn’t seeing home values increase as quickly as other areas.
There is another challenge with real estate as an investment – it’s hard to get to the money in it if you need it quickly.
“Real estate is also very illiquid,” Torgerson said. “You can’t get out of real estate investments easily.”
If you buy duplexes or single-family homes to rent to others, this can provide you a steady income. But to get the value out of these properties, you’ll have to sell them. Selling takes time, costs money and can be frustrating. You never know when you’ll find a buyer and you can count on paying plenty in real estate costs when the sale actually closes.
For these reasons, investors need to understand that, yes, real estate has been a safe investment over the long haul. But they need to understand, too, that investing in homes comes with its own set of challenges.
A Diversified Portfolio of Stock
There’s no guarantee that any one stock will grow in value over time. But those who do invest in a diverse portfolio of stocks will greatly increase their odds of seeing these investments increase in value.
Robert Johnson, president and chief executive officer of the American College of Financial Services in Bryn Mawr, Pennsylvania, pointed to research by consulting firm Ibbotson Associates as evidence. According to the company, the average annual return for large-capitalization common stocks since 1926 is 10%. During the same time, government and corporate bonds return an average of about 6% while cash has a yearly average of about 3%.
The key, though, is to invest in a diverse array of stocks covering a wide range of industries.
“A diversified portfolio is essential, as individuals should understand that it is very difficult to pick stock market winners,” Johnson said.
How important is this? Johnson pointed to a working paper by Hendrik Bessembinder at Arizona State University. That paper – titled “Do Stocks Outperform Treasury Bills?” – said that over the long run, the vast majority of stocks actually don’t outperform treasury bills. The strong performance of the stock market, then, is largely attributable to strong returns by a relatively few stocks.
“In other words, for every high-flying stock like Amazon, Facebook and Netflix, there are more Toys.com, ValueAmerica, Global Crossings and Enrons,” Johnson said.
The message? Invest in stocks. But don’t put too many of your investment dollars in just a handful of them. Invest in a wide selection and you’ll give yourself the best chance of seeing your investments soar.
Silver and Gold
Paul Koger, head trader and founder with Foxy Trades LLC, recommends that investors sink their money in gold and silver, commodities that, over the long haul, have steadily risen in value.
These assets, though, are only a good choice for those investors who are patient and willing to let their investments sit for years.
“I choose assets based on what will likely increase over a long-time horizon,” Koger said.
Patience is the key with these type of assets, Torgerson agreed.
“Gold is historically a long-term positive investment,” he said. “But it’s been down for over 10 years. Eventually, inflation will push gold prices up, but you may have to hold your investment for a very long time to see gains.”
Deborah Sweeney, chief executive officer of Calabasas, California-based MyCorporation, a document-filing service, said that business property, or property that can be leased for commercial businesses, proves to be very valuable over time.
“Not only does the property increase in value, but tenants can help you pay the mortgage on the property through rental or lease payments,” Sweeney said.
But as with all long-term investments, owning commercial property does require work.
“It can be an investment of time to maintain leases and the property itself,” Sweeney said. “But often physical property can be an extremely valuable asset over time.”
Dr. Jason Cabler, a practicing dentist in Fairview, Tennessee, and author of the Celebrating Financial Freedom blog, offered a more controversial asset that he says is a solid choice for long-term investors; cryptocurrencies.
Most people know of Bitcoin, the most famous of the digital currencies. There’s also Ethereum, a second type of cryptocurrency that has been generating interest. Today, consumers can use these virtual currencies mostly in online stores and games. But Cabler said that this might not be the case for long.
Cabler and other proponents of virtual currencies envision a day when consumers buy an ever-growing range of products with Bitcoin and Ethereum. Because the world of virtual currencies is such a young one, there is potential for these digital assets to grow significantly in value. Of course, there’s potential for the opposite to happen, too, so cryptocurrencies might only be an investment choice for those amenable to at least some risk.
“This may be a little controversial, but I’m also very bullish on cryptocurrencies,” Cabler said. “They are highly volatile, and much more risky than other investments. But I believe they have nowhere to go but up over the long haul.”
Which types of assets have you invested in that you hope will be a good performer over the long haul? Let us know in the comments below!
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