If you have some additional funds saved up you might have been starting to wonder - should I not let my money sit idle and invest it? While investing seems risky and demands a lot of effort, there actually are some long-term investment options allowing you to just invest and forget while your interest accumulates. What are these options?
Risk and Reward Concept
Before moving further with the list of the best long-term investments, let’s first go over the risk-reward concept - the ABC of investing.
The risk-reward concept applies to any place where returns can be generated - every time you invest there’s always some type of risk persisting that the investment will fail and you will lose your money.
However, for bearing that risk, you are rewarded with interest - the higher the risk you are willing to take, the bigger will be your interest rate.
There are investments with different degrees of risk involved. There are low-risk, medium-risk, and high-risk investments, all offering different interest rates. Usually, the higher the risk degree, the higher your return, and the lower the risk, the lower your return.
While high-risk investment options might seem appealing due to their high-interest rates, they are very unstable and usually require constant checking.
That’s why lower-risk investments might be the best bet for you - you can just invest and forget.
Long-Term Investment Options
ETFs, or Exchange-Traded Funds, are a type of fund, holding multiple underlying assets - it’s a collection of hundreds of stocks and bonds. ETFs work similarly to mutual funds (a managed portfolio of investments that pools money together with other investors to purchase a collection of stocks, bonds, or other securities), except unlike mutual funds, ETFs can be traded on an exchange just like regular stocks. And, their price will fluctuate throughout the trading day.
ETFs usually contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. There are various types of ETFs depending on what type of assets they are tracking the price of - there are market ETFs, bond ETFs, foreign market ETFs, commodity ETFs, etc.
An ETF can be bought and sold like a regular stock - on an exchange during the trading hours when the stock exchanges are open.
ETFs are primarily associated with index tracking. However, many ETFs offer income from owning dividend-paying stocks. By investing in ETFs you are technically buying shares and investing in companies that belong to these ETFs. Your income then comes from regular dividend payments distributed among all the shareholders of the ETF.
It’s fairly simple to start investing in ETFs. Here’s a general outline of how to start:
- You should find an investing platform.
This step shouldn’t be too hard. ETFs are available on most online investing platforms, retirement account provider sites, and investing apps most online investing platforms, retirement account provider sites, and investing apps.
One of the platforms to acquire ETFs at - Interactive Brokers. Interactive Brokers is an American electronic trading platform focusing on broad market access, low costs, and superior trade execution. The platform offers various brokerage services for customers, including trading stocks, options, and bonds on 135 markets from a single integrated account.
Interactive Brokers is fully accessible to European customers. It provides a wide range of offerings around the world and across asset classes, has low service fees, and there is no minimum amount required for buying stocks.
- Do a little research into the ETFs available.
This is probably the most important step for ETF investing - research. Since there is a huge variety of ETFs currently available, you should do some research on what the available options are, what are their time frames, etc. Doing great research can take you far.
- Consider the best trading strategy for you.
After you’ve done your research, consider what ETF investing strategy would be best for you. Some beginners spread out their investments over a period of time to smooth out returns, some invest all at once, some - rotate between different ETFs.
Consider what investment style fits you and then you can start investing.
ETFs are easy to trade, transparent, and tax-efficient. However, if you plan to invest small amounts frequently, the trading costs might be too steep for you.
Probably the greatest thing about ETFs is that they are by default vert spread out - most ETFs buy shares from 500 or more companies. This means that you won’t be putting all your eggs in one basket. Even if one of the companies is underperforming - you have hundreds of other companies to fall back on. This makes ETFs secure and stable.
Examples of the most popular ETFs include iShares MSCI World ETF, Vanguard FTSE All-World, and SDPR S&P Dividend ETF. These are great beginner-friendly and secure options and many beginners choose these to start their journey in ETF investing.
Index funds can be considered a type of ETF. However, they differ significantly from traditional ETFs.
Index funds, market indexes, or index trackers, seek to track the returns of a market index. They measure the performance of a bunch of assets that represent a certain sector or market. Market indexes often use a company’s market capitalization (total value) to decide how much weight that security will have in the index.
Since index funds are considered a type of ETF, like ETFs, they can be found on stock exchanges and online brokerage accounts. People take different approaches to market index investing - some invest in all of the bonds provided in the market index, while others invest in only a few.
Index funds follow a passive investment strategy, meaning they aim to maximize returns over the long run and not trade securities very often. This makes index funds a safe, fairly stable, and cost-effective long-term investment option.
The most famous example of an index fund is the S&P 500 - a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.
Credit Unions are financial institutions. In a way, they are similar to banks with two major exceptions - they are member-owned and non-profit organizations. Credit unions center around their users - people holding accounts. So, it’d only be logical that they would work in order to benefit the account holders and not the shareholders.
Credit unions offer the same kind of products and services as traditional banks: credit cards, checking accounts, loans, and savings accounts.
With credit union savings accounts, you can earn a stable annual few percent of interest.
Credit unions follow a basic business model - members pool their assets that are used to provide various financial services and products to each other. And, the generated income is used to fund projects and benefit the community. In a way, credit unions are traditional finance equivalents of a DeFi protocol.
Since credit unions are owned by their members, there are stricter eligibility requirements to qualify to be a member. Each union has its own requirements, but most ask for you to be either a local community member or a member of a certain group:
You may qualify to be a member if you live in a certain area or town. You also may qualify if you work with a certain employer. If you are a part of a particular group, like a labor union or school, you also may be eligible. Another way to join a union is if your family member is already a member of that particular credit union.
So, when you are searching for a credit union, you should start by checking local credit unions - since you’ll likely have better chances of meeting eligibility requirements.
Stablecoin Lending Protocols
Although it might seem surprising, there are long-term investment options in a hectic market such as decentralized finance. These are stablecoin lending protocols.
If you’re not familiar with stablecoins, a stablecoin is a type of crypto token that is related to a traditional finance counterpart. This means that the price of these tokens is the same as their counterpart - 1 USDT will be worth 1 US Dollar. This makes them more stable than other cryptocurrencies.
Stablecoin lending is a great and effortless way to invest - lending your crypto assets for others to use and getting the assets back with interest. In a way, the process of lending crypto is in no way different from lending money to a friend.
Stablecoin lending provides fairly high-interest rates and while some might feel cautious - the high-interest rates don’t come from nothing. First of all, high stablecoin interest rates can be explained with simple economics:
Interest rates on dollars are so low - there are far more cash dollars circulating in conventional markets than anyone has a use for. This means they don’t have any demand. This leads to low-interest rates - no one wants them so there’s no point for banks to pay interest for deposits.
Stablecoins work the other way around. Demand for stablecoins is actually always way higher than the supply available. Crypto platforms are desperate for stablecoin lenders since there is always a deprivation of stablecoins. So, anyone lending stablecoins can charge high-interest rates.
Now you might think - aren’t crypto technically coming from thin air? Can’t they just make more stablecoins? Well, yes. But creating more stablecoins doesn’t exceed demand. Why? Where’s this demand coming from?
- Stablecoins make great liquidity. That’s why a lot of demand is coming from crypto exchanges. Stablecoins allow people to trade in and out of cryptocurrencies easily and quickly. And, they lessen the risk of losses on the bridging asset.
- Another reason why stablecoins are in such high demand - they make great protection in the case of price volatility. When cryptocurrency prices are wild, the demand for stablecoins increases significantly since their price remains fairly stable (hence the name).
Since the crypto market is rapidly and constantly evolving and growing, so does the demand for stablecoins.
However, if you're still feeling cautious about investing in crypto, you can always turn to DYOR. DYOR, meaning Do Your Own Research, refers to a set of practices used to make successful investment decisions by gathering the necessary information.
There are a lot of places to invest by stablecoin lending, however, using them involves a bunch of additional steps - finding trustworthy investment options, buying and exchanging cryptocurrency, creating crypto wallets, etc.
The Bitlocus Platform provides you with a safe and headache-free way of participating in stablecoin lending. We eliminate the steps mentioned above by allowing you to invest using traditional currencies, such as Euros, into a thoroughly selected list of investment options via our platform.
Leave all your worries to Bitlocus — enjoy crypto benefits without getting stuck in a spider web of crypto procedures and information.
Disclaimer: these are only opinions and in no way should be taken as financial advice.