There’s no doubt about it: Investing can be exciting. It seems like every day the financial news headlines feature stocks that have doubled in price overnight or cryptocurrencies that have made instant millionaires.
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However, what’s often overlooked in these stories is the countless others who have lost fortunes in pursuit of “get rich quick” investments. The unfortunate truth for impatient investors is that over the long run, consistent, “boring” investments — not risky speculations — are the key to generating lifelong wealth.
While you might occasionally snag a big score, you’re just as likely to lose it all on the next one. And since just one big loss can be devastating to your long-term financial success, it’s important to avoid taking on too much risk in your investments.
While you should feel free to gamble with a tiny portion of your overall portfolio, when it comes to creating wealth over the course of your entire life, stick with the experts and hang on to some of these “boring” investments.
Index funds are the epitome of “boring” investments. After all, most index funds are passive exchange-traded funds that merely own all of the stocks in an underlying index, trying to match its performance. For example, a number of S&P 500 index funds exist, and their purpose is to provide investors with something very close to the exact return of the S&P 500 index every year.
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Over the long run, the U.S stock market has provided average returns of about 10% per year. This means on a $5,000 investment, an “average” return for an S&P 500 index fund would be about $500 per year. This type of return isn’t likely to get the speculative crowd excited, as they tend to look for investments that can rapidly double. But here’s the thing: A 10% average annual return can lead to serious wealth by the time you retire.
Imagine you start investing just $300 per month into an S&P 500 index fund at the age of 20. If you earn 10% per year, by the time you turn 60, those modest monthly investments will have turned into about $1.9 million.
This is the type of wealth that speculators are no doubt looking for, and it can be attained with consistent, boring investments. Even legendary investors such as Warren Buffett, the billionaire CEO of Berkshire Hathaway, has repeatedly stated that index funds are the best option for most investors.
Dividend Aristocrats are another type of “boring” investment that can not only provide good long-term returns but also help shield your portfolio during market downturns. A Dividend Aristocrat is a stock that has not only paid but also increased its dividend for at least 25 years in a row.
The dividends that these stocks pay can help cushion them when the market goes down; but, perhaps even more important, this type of consistency of payout indicates an underlying business that generates huge, regular cash flow. These are the types of companies that are most likely to remain wealth generators for the long run — even if their rate of return isn’t always exciting.
High-Yield Savings Account
A high-yield savings account doesn’t sound like much of an “investment” — and, for the most part, that is true. However, a high-yield savings account is the cornerstone of a financial plan for most Americans, and it is always worth it.
A high-yield savings account is an insured account that’s the perfect home for pots of money like your emergency fund, the down payment for your house or your vacation savings. Without this important, boring investment, you might find yourself going into debt more easily, and that can be a financial merry-go-round that you might never be able to get off.
Your home is likely the most “boring” investment you will ever own. But it likely will prove to be worth it over the long run, for a number of reasons. The most obvious one is that you need shelter and a place to live. But, in most cases, experts recommend owning a home over long-term renting. Every mortgage payment you make builds up the equity of your home and, over time, housing prices have generally matched or exceeded the rate of inflation.
Depending on your personal situation, you may also be able to take equity out of your home at some point and use that leverage to invest in more properties, pay off high-rate debt or otherwise improve your financial life.
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