10 Best Long-Term Investments for Financial Freedom: Index Funds, Stocks, Real Estate, Retirement Accounts, Businesses, and Income-Producing Assets.
Financial freedom is a beautiful thing.
To have enough money and a steady income you can make choices based on what you want out of life rather than what your next paycheck will allow.
But arrival is seldom an overnight affair.
Most people build wealth slowly, through earning, saving, and investing, avoiding the mistakes that cost them, and allowing good decisions to compound over time.
The good news is you do not need to be rich before you start investing.
You don’t have to guess which stock will be the next big winner, either.
What you need is a long-term strategy.
And the best long-term investments can help you grow your money, make more money, maintain your purchasing power and eventually reduce your reliance on employment income.
Here are 10 long-term investments if you want to achieve financial freedom, and some practical ways to decide which ones should be in your financial plan.
Disclaimer: This article is intended for educational and informational purposes only.
This is not personalized financial, investment, tax, or legal advice. Investments are subject to risk, including the loss of principal.
Before investing, think about your goals, financial situation, time horizon, and risk tolerance.
What Does Financial Freedom Really Mean?
Financial freedom doesn’t mean you have to be a millionaire or retire at 40.
In its simplest terms, financial freedom means you’ve reached a point in your life where money gives you options.
You might need enough financial security too:
- Have a comfortable retirement
- Work fewer hours
- quit a job of high stress
- Travel more often
- Assist your children
- Starting a business
- Pay off your mortgage
- Give more money to causes you support
- Keep your cool in an emergency
Their definition might be completely different from yours.
That’s why investment can’t start with:
“What is the best investment?
It should begin with:
“What am I trying to accomplish?”
When you know where you want to go, selecting the investments is much easier.
1. Broad market index funds
For many long-term investors, broad-market index funds can be a practical place to start.
An index fund allows you to own small pieces of lots of companies all at once, instead of trying to decide which companies are going to win.
Some funds track large chunks of the US stock market, some give you exposure to international markets or the whole global stock market, for example.
The benefits can include:
- Diversification right now
- Relatively low costs
- Easy portfolio management
- Long-term growth prospects
- Less dependent on the performance of a single company
It’s not a pleasant way to do it.
And that’s part of the point.
Not all exciting investment strategies are necessary for building wealth.
A diversified portfolio, regular contributions, low cost, and patience can be surprisingly powerful.
How index funds can help you achieve financial freedom
The real benefit is compounding.
If the investment gains are reinvested, they can in turn earn further gains.
Over decades the difference can be substantial.
The important ingredient is not to look for the perfect time to invest.
Time invested.
2. Retirement Accounts
At times, the account you keep your investments in is almost as important as the investment itself.
Retirement accounts can provide valuable tax advantages as you work to grow your wealth for the future.
You can choose from employer-sponsored retirement plans and individual retirement accounts depending on your location and eligibility.
Examples in the United States include:
- 401k
- 403(b)
- Traditional IRA
- Roth IRA
Learn how the program works if your employer makes matching contributions.
When an employer matches it, it can be a substantial part of your total compensation.
For example, if you contribute to your workplace retirement plan and your employer kicks in additional money based on its matching formula, you’re adding to the amount being invested toward your retirement.
The specific tax treatment and rules around withdrawals will differ, so be sure you understand the account you are using.
3. Individual stocks of high quality
Individual stocks can also be part of a long-term investment plan.
When you buy stock, you buy a piece of the business.
If that business increases its revenues, profits and value for years to come, shareholders will do well.
But purchasing individual stocks takes more research than buying a diversified index fund.
Consider factors such as before investing
- Revenue and profit
- Debt
- Flow of Cash
- The competitive advantages
Trends in industry
- Management
- Approximate
- Long-term growth outlook
And remember:
A great company is not necessarily a great investment at any price.
Diversification is important because the best of companies can get into trouble.
Diversified funds may be a simpler path for investors who don’t have the time or desire to research individual businesses.
4. Preferential Investments
Dividend paying companies share a portion of their profits with their shareholders.
Dividends might also be another form of return for long-term investors.
Consider building a portfolio that will eventually produce regular dividend income.
That money might be:
- Re-invested
- Used for expenditure
- Added to savings.
- Invested in other places
- In retirement
Reinvesting dividends can be especially beneficial during your wealth-building years because you’re buying more shares, which can generate their own future dividends.
But don’t buy an investment just because it has a high dividend yield.
A very high yield can sometimes indicate that the price of the stock has dropped significantly or that investors fear the dividend is not sustainable.
Quality counts.
5. Real Estate Properties
Real estate has generated wealth for many families.
Property is tangible, unlike shares.
You notice it.
Refine it.
Lease it.
And perhaps even profit from its changing value.
Rental property can help you create wealth in several ways:
Rental Income + Property Appreciation + Mortgage Principal Reduction
That sounds tempting, but real estate is not passive by default.
Owners can face:
- Repairing
- Property taxes
- Insurance
- Openings
- Maintenance
- Cost of financing
- Property management fees
- Unforeseen expenses
Much of successful real estate investing is buying at good numbers.
Just because you hope a property will appreciate doesn’t mean it’s a good investment if it’s losing money every month.
Always do the math.
6. Real Estate Investment Trusts (REITs)
What if you like the idea of real estate, but don’t want tenants to call you about a broken water heater?
Another choice is real estate investment trusts, often referred to as REITs.
For investors, REITs provide a way to invest in income-producing real estate without having to buy and manage properties themselves.
REITs can own assets including:
- Blocks of flats
- Factories
- Data centers.
- Healthcare real estate
- Shopping malls
- Commercial office buildings
- Hotels
They can offer diversification and potential income, but they do have investment risk and can lose value.
REITs provide a simple way for some investors to add real estate to a diversified portfolio.
7. Bonds and Fixed Income Investments
More wealth is not only about maximizing growth.
It’s also about risk management.
That’s where bonds and other fixed-income investments can come in handy.
In effect, when you buy a bond, you are loaning money to a government, municipality or corporation with the expectation of receiving interest payments and getting your principal back as specified in the bond contract.
Bonds have different risk and return characteristics than stocks, in general.
As investors approach the time they need their money, many prefer a blend of growth and more conservative investments.
Why?
Because you don’t want the market risk to be the same on every dollar you have.
The right allocation depends on your age, your goals, your risk tolerance and when you want to invest.
8. Your Own Business
One of the most underappreciated long-term investments doesn’t even trade on a stock exchange.
It’s your business.
A profitable business could potentially:
- Increase your earnings
- Build equity
- Offer employment
- Create recurring revenue
- Become a thing you can sell later
That is not to say entrepreneurship is not hard.
Companies fail.
Customers come and go.
Prices go up.
Competition.
But a business, unlike passive investments, gives you some ability to influence the outcome.
You can do better for your service.
Set prices.
Get new customers.
Lower costs.
“Relaunch more products.
Enhance your marketing.
If you have valuable skills and a clear market opportunity, building a small profitable business can be an important part of a long-term wealth strategy.
9. Build your skill set and earning power
Your portfolio is not your only asset.
You are an asset, as well.
Say you pay $2,000 to acquire a skill that’s worth something, and that skill eventually increases your income by $10,000 a year.
That’s a potentially huge return.
Skills that can increase earning power may be:
- Accountancy
- Bookkeeping
- Tech
- Artificial Intelligence (AI)
- Analysis of data
- Security of Cyber
- Health Care
- Sales
- Project Management
- Online marketing
- Technical trades
The trick is to pick an education that has real economic value.
Before you buy a program ask these questions:
Will employers or customers pay a premium because I have this skill?
When you increase your earning potential, it can have a significant ripple effect.
Higher income can mean higher savings.
The more you save the more you can invest.
Bigger investments can generate more compound growth.
10. Intellectual Property and Digital Properties
Building wealth today is not simply about owning stocks and real estate.
You can also make assets.
Examples:
- E-Books
- Online courses
- Templates
- Printable
- Membership website
- Software
- Blogging
- Resources for teaching
- Digital planners
- Licensing Opportunities
The upside is that it scales.
A traditional job usually means you are trading time for money.
A digital product can be created once and sold multiple times.
Of course, “passive income” almost always demands a lot of active work up front.
You need to build the product, sell it, support customers and keep changing your strategy.
But online assets can be another income stream that doesn’t directly correlate to every hour you work overtime.
Get Your Financial House in Order Before Investing More
Here’s something people often skip.
They begin researching stocks before they even know how much money they’re shelling out each month.
They want passive income, but they don’t have an emergency fund.
They want to invest aggressively, and they have expensive consumer debt.
Build a solid financial foundation for your investment portfolio.
Know:
What goes in.
What is released.
What you owe.
Your property.
What you are saving.
What do you put in?
What you’re trying to do.
This is where a financial planning system can really pay dividends.
Best Financial Planner to Organize Your Financial Life
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How much do you pay each month?
There is not a number that fits all.
Maybe you’ve heard that you should be saving 10%, 15% or 20% of your income.
Those can be helpful guidelines, but your financial situation is more important than a one size that fits all percentage.
If you have high-interest debt to pay off and are the head of a family, your priorities may be different from someone with no debt and a six-month emergency fund.
But a better way is to develop an amount you can sustain over time.
Maybe you start with $50 a month.
Then bump that up to $100.
$250 later.
Maybe $500 or more eventually.
Don’t underestimate small increases.
This month $50 extra may not seem like life is changing.
Repeated for years it can matter enormously.
The Investment Mistakes: Financial Freedom Killers
It is important to choose good investments.
Equally important is avoiding bad financial behavior.
Following whatever is hot
When the entire world is talking about a particular investment, much of the excitement may already be priced in.
Attempting to time the market perfectly
If you wait forever for the “perfect” entry point, your money could sit on the sidelines.
Panic selling Market crash.
This is normal.
Selling just because you’re scared can turn temporary market dips into permanent losses.
You will need cash soon
The money you need soon enough shouldn’t be tied to the short-term market performance which is unpredictable anyway.
Forget fees!
Even modest investment fees can accumulate over decades.
All eggs in one basket
Diversification does not eliminate risk, but it can lessen your reliance on a single company, industry, property or asset.
Investing without an emergency fund
Each unexpected bill that forces you to sell investments will make it much harder for you to maintain your long-term plan.
A Simple Wealth-Building Strategy for the Long Term
You don’t need a 47-step investment plan.
For many people the basic structure can be surprisingly simple:
Step 1: Know your income and expenses.
Step 2: Create an emergency fund.
Step 3: Pay off high-interest consumer debt.
Step 4: Utilize appropriate employer retirement benefits.
Step 5: Consistently invest in diversified long-term assets.
Step 6: Raise your contributions as your income increases.
Step 7. Build other sources of income.
Step 8: Don’t blow your lifestyle budget.
Step 9. Review your financial plan regularly.
Step 10: Let the process take its time.
The last step could be the hardest.
We live in a world that wants it all now, right now.
But patience is often rewarded with riches.
Financial Freedom is More Than Your Portfolio Balance
And that is something to remember.
Just because someone has the largest investment account doesn’t mean they are the most financially free.
Someone who earns $ 200,000 a year but spends $ 210,000 a year is not financially independent.
Someone who earns far less, lives well below his means, owns productive assets, and has little debt may have much more financial flexibility.
Financial freedom is in part the relationship between your assets and your lifestyle.
The lower the wealth requirements of your lifestyle, the lower your wealth needs may be.
Doesn’t mean living like a miser to save every penny.
It’s about making time on purpose.
Spend lavishly on the things that really matter to you.
Be ruthless about costs that don’t.
Then plow the difference back in.
How Long Does It Take to Achieve Financial Freedom?
There is no regular schedule.
This will be determined by factors such as:
- Current earnings
- Rate of savings
- Borrowings
- Investment performance
- Net worth at inception
- Expenses on living expenses
- Career development
- Family obligations
- Unanticipated financial events
Typically, someone who invests 5% will have a different path than someone who invests 40%.
Someone starting at 25 is going to have a different timeline than someone starting at 55.
However, starting late does not mean you should not start at all.
You cannot change when you begin.
You can change what you do from there.
Conclusions: The Best Long-Term Investment Is a Strategy You Can Live With
There is no magic investment that will guarantee your financial freedom.
For many people the most powerful approach will be to have several assets working together.
Stocks can grow money over the long haul.
Diversification and stability can be found in bonds.
You can earn income and equity through real estate.
“Businesses can grow earning potential.
Digital resources are revenue generators that can scale.
Your skills can increase the money available to invest in anything else.
It’s not about owning every single possible investment.
It’s to create a portfolio and financial plan that match your goals, time horizon and appetite for risk.
Start from where you are.
Spend what you can.
Earn more money if you can.
Don’t go into debt.
Diversify.
Keep on learning.
And let your money grow.
Usually, financial freedom doesn’t come from one brilliant financial decision.
It’s the result of hundreds of good decisions made many years ago.
Ready to Turn Financial Objectives into Plan?
Having a clear picture of where you are and where you’re going makes building wealth easier.
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