Long-term investment strategies: how to build wealth overtime 

What is long-term investing? 

Long term investing is the act of buying and holding assets over an extended period, instead of trying to take profit from small, short-term market movements. Although never guaranteed, the goal is to benefit from compound growth, and the upward trend of the market overtime whilst riding out shorter-term market volatility.* It’s often driven by big picture financial goals such as retirement or buying a house and requires a long-term view instead of reacting to market news.  

*Please note that financial markets are volatile and there's a chance they could fall in value and you could lose money.

How to buy long-term investments 

1. Learn more about long-term investing  
2. Open an account with us  
3. Decide on the best long-term investments for you and open a position 
4. Monitor your position 

Please note that financial markets are volatile and can fluctuate in value, so there’s always the risk you could lose money. To help mitigate this, it’s important to develop a risk management strategy.  

Stocks & Shares 

Stocks and shares are one of the most well-known financial instruments. Each one represents a unit of ownership of a specific company, so buying a stock means you own a portion of the company’s capital and provides opportunities to potentially profit through its increased share value and possible payment of dividends. 

Advantages of stocks and shares as long-term investments 

• Long-term growth potential – Historically, investing in shares stronger returns than cash and bonds over-time. Although this can never be gauranteed.
• Easy to buy and sell – Shares are brought and sold on stock exchanges, making it easy to enter and exit positions.  
• Dividend payments – Some companies pay dividends which offer an extra income stream.
• Diversification – you can invest in stocks across multiple different industries, sectors and countries to help mitigate risk is one area underperforms.  

Disadvantages of stocks and shares as long-term investments  

• Markets can be volatile – Financial markets can be volatile and there’s always the risk that you could lose money.  
• Time commitment – Making informed decisions whilst investing in stocks takes time. Without a good understanding of the markets, it can be difficult, and it increases your risk exposure. 
• Tax implications – Most of the time, profits will be subject to capital gains tax. To maximise returns, it’s important to understand how this will impact you. Tax advantage accounts like ISAs can also help mitigate this.** 
• Dividends aren’t guaranteed – A company decide to reduce or cut dividend all together whenever they choose.  

**Tax treatment depends on individual circumstances and is subject to change

Exchange-Traded Funds (ETFs)  

ETFs are investment funds that trade on a stock exchange like individual shares but hold a basket of assets like bonds, commodities and stocks. Typically, they’ll track a whole sector or an index (like the LSE) and offer diversified exposure with one purchase. 

Benefits of ETFs as long-term investments 

• Diversification across multiple assets – ETFs can hold several different securities which helps spread risk as your portfolio isn’t reliant on the performance of a single asset or company. 
• Easy to buy and sell throughout the day – You can buy and sell ETFs on stock exchanges throughout the day just like shares. This means they’re easy to access and provide you with real time pricing and flexibility.  
• Access to a range of markets and themes – ETFs can provide access to a range of different markets and themes including stocks, bonds and commodities making it easier to build a long-term, balanced portfolio.  
• Tax efficiency – ETFs are often more tax efficient than mutual funds as they create fewer taxable events so overtime you may end up paying less capital gains tax.  

Disadvantages of ETFs as long-term investments 

• Tracking errors – Some ETFs may not perfectly mirror the index/sector its tracking due to fees or the method it’s using to replicate an index.   
• Market risk – Even diversified funds can drop in value when markets fall. If the asset or index the ETF is tracking decreases in value, the ETF will usually fall as well.  
• Risk of fund closure – If an ETF is closed by its provider, you may be forced to sell shares earlier than planned.  
• Limited diversification - Some ETFs exclusively focus on large-cap stocks which could men you’re not exposed to the growth potential of mid-small cap companies. 

 Self-Invested Personal Pension (SIPP) 

A Self-Invested-Personal-Pension (SIPP) is a type of UK pension that allows you to choose where your pension is invested, instead of it being managed for you.  You can choose from a variety on investments ranging from stocks, ETFs, REITs, funds and bonds allowing you to develop a portfolio that’s in keeping with your investment goals.

Advantages of SIPPs as long-term investments 

• Control and flexibility over your investments – Being able to actively choose your investment provides you with the flexibility to tailor your investments to your time horizon, retirement goals and risk tolerance.  
• Tax efficiency – Investments held within a SIPP aren’t subject to capital gains tax, meaning that overtime your savings can compound overtime.
• Designed for long-term investing – SIPPs are designed to benefit from long-term market growth and compounding as opposed to shore-term market movements. 

Disadvantages of SIPPs as long-term investments  

• Investment risk – As with any investment the value of your SIPP can rise and fall along with the market and there’s always the possibility you could lose money if the market turns against you. 
• Higher costs and fees – SIPPs can include fund costs, dealing charges and platform fees which can be higher than other more simple pension options. 
• Complexity – As you’re responsible for selecting and managing your investments, it requires a level of financial competence and poor decisions can impact your retirement savings. 
• Limited access to your money – Generally speaking, money in a SIPP isn’t usually accessible until you reach retirement age (55, but rising to 57 in 2028) so if you’ll need the money before then it may not be the best long-term investment option 

Open a SIPP account today 

Real Estate Investment Trusts (REITs) 

A Real Estate Investment Trust (REIT) is a company that either owns, finances or operates income producing real estate such as warehouses, shopping centres, offices, apartments or healthcare facilities. It allows you to gain exposure to the property market without having to buy physical property.  

Advantages of REITs as long-term investments 

• Portfolio diversification – REITs are a good way to diversity your portfolio on top of stocks and bonds as real estate may follow different cycles.  
• Exposure to the property market – Provides exposure to the property market without having to buy physical property.  
• Liquidity – REITs are far easier to access and exit than traditional property investments are they’re brought and sold on stock exchanges.  
• Dividends – REITs often pay regular dividends which can be reinvested to help grow wealth overtime.

Disadvantages of REITs as long-term investments  

• Market volatility – Much like regular stocks, REITs share prices can be volatile and so prices can fluctuate and there’s always the risk you could lose money.
• Some charge high fees – Some REITs charge management or performance fees which can reduce overall returns. 
• Tax implications – REIT dividends can be taxed as ordinary income, which can be more than capital gains rates. 
• Concentrated on one sector – REITs focus on a specific property type (e.g. office or retail) which can be vulnerable to sector downturns. 

Bonds 

Bonds are a type of investment where you lend the government or a corporation money in return for regular interest payments and the repayment of your initial investment at a set date. As the income and repayment terms are set in advance, they are often seen as a lower risk choice than other long-term investment options. They can be used within a balanced portfolio to provide a level of predictability.  

Advantages of Bonds as long-term investments 

• More predictable returns – Bonds usually pay fixed interest at regular intervals and return the original investment at a set date. This makes it easier to plan ahead and forecast income.
• Lower risk - Bonds tend to be less volatile than other long-term investment options and can help preserve wealth during periods of market uncertainty. 
• Range of options - You can choose from a range of bonds meaning it’s possible to match your investments to your risk tolerance. 
• Diversification - Bonds behave differently from other investments so they are good to include as part of a balanced portfolio to help manage risk.

Disadvantages of Bonds as long-term investments  

• Lower return potential – Generally speaking, bonds offer lower returns than other long-term investment options 
• Interest rate risk – When interest rates rise newly issued bonds can offer higher interest payments than existing bonds. This makes older bonds with lower fixed rates less attractive to investors and to stay competitive their market price tends to fall 
• Reinvestment risk – When bonds mature, there’s a risk you may have to reinvest them at lower interest rates 
• Credit risk – There's always the chance that the bond provider could default and be unable to make payments. 

How to choose the best long-term investment for you  

Choosing the best long-term investment options is a personal decision and there’s no ‘best’ way to do it. Each type of investment comes with its own set of advantages and disadvantages that could impact your returns. To minimise risk, consider spreading your investments across different financial instruments, markets and sectors to help protect your capital during periods of volatility. Ultimately, the best strategy for long-term investing is one that aligns with your financial goals and risk tolerance.