What long term investments should you opt for in 2020?
Looking for potential long term investment options? Are are three choices you may wish to consider.
The concept of investment is increasingly popular in the UK, particularly as median household income continues to increase incrementally on average. This rose to £29,400 in the financial year ending 2019, with this number having increased by 1.4% in comparison with the previous year.
As people see their disposable income levels continue to rise, they’re increasingly inclined to seek out long-term investment options that enable them to make the most of their accrued wealth.
In this article, we’ll consider three of the best investment options from a long-term perspective, while asking which of these is right for you.
1) Stocks and shares
In the modern age, it’s possible to leverage stocks and shares through a number of different investment vehicles (including spread betting which treats stocks as a derivative asset).
Traditional stock options represent ownership in a company, as shareholders invest to secure a fixed holding that will hopefully grow in line with the business’s performance.
Increased profits and commercial growth (along with positive press coverage) will trigger incremental increases in associated share prices, creating a scenario where the value of stock holdings rises over an extended period of time.
In this respect, stocks represent an excellent long-term investment option, and one that can deliver an exceptional yield over time.
For example, if you’d invested a hypothetical £100 in the Standard & Poor’s 500 index on Jan. 1, 1928 and retained this asset, this holding would have been worth a mammoth £399,885.98 by the end of 2017!
2) Enterprise Investment Schemes (EIS)
While you may not have heard of an enterprise investment scheme, this is fast emerging as a secure and lucrative long-term investment vehicle in the modern age.
But how does this work? If you’ve reached the lifetime limit on your pension fund (or used up your annual pension and ISA allowances during the tax year), you can invest some capital into an EIS fund to provide a tax-effective supplement for your long-term portfolio.
This enables you to claim up to 30% tax relief on investments up to £1 million in the current tax year, whilst 100% of this fund can qualify for inheritance tax (IHT) relief in instances where you’ve held stocks for a period of two years or more.
3) Interest-paying bonds
Bonds provide a secure and interesting alternative to stocks, as they don’t require ownership of an underlying asset or financial instrument.
Instead, bondholders are creditors of the issuer, which means that those holding the bonds ae effectively lending a fixed sum of cash to the issuer. As a result, bonds are purchased in the expectation that holders will receive regular interest payments and dividends, which are usually delivered on a semi-annual basis.
As you can imagine, these bonds can provide relatively small but consistent payouts over time, enabling you to accrue a reliable source of wealth over time.
You can also sell an existing bond on the secondary market, although you should note that the value of the asset rises and falls in line with interest rates.
Photo by Austin Distel