The Best Long-Term Products for the Intelligent Investor

July 17, 2011, By Phil Dotree 3 comments

If you've got a bit of extra money each paycheck, you're probably thinking about investing it—or spending it on candy. Candy is generally a bad investment, as it normally gets hard and chalky after only a few days.

Instead, here's a look at a few financial products that will build their value over the course of many, many years.

IRAs

Younger guys should invest in an individual retirement account (IRA) as it's a very simple way to build money for retirement without major complexities. Up to $5,000 a year can be invested in an IRA, and that money is tax deductible.

Another good option is a Roth IRA. Contributions to a Roth IRA are taxed going in, but funds aren't taxed when they're withdrawn after you're 65. Money can also be withdrawn tax-free in certain circumstances, such as when you're buying your first house. Therefore, if you're still in your 20s or early 30s, a Roth IRA might be a good choice.

ETFs

Exchange-traded funds can be a bit more fun than IRAs. Although that sounds like a silly reason to pour your money into a financial product, it isn't. The more interested you are in the product, the more you'll invest, improving your chances of serious, long-term gains.

ETFs usually track a financial index, and they're extremely tax efficient. Trades can occur at any time, which means that you have the freedom to invest as much or as little as you want. The low cost of ETFs makes them a great option for first-time investors. Be sure to do your research, however, before buying one of these products. Although they're not as complex as some other index-based stock products, they can be a bit tricky. It's a good idea to get a financial advisor to help you choose and manage an ETF.

U.S. Government Bonds

Your grandma knew what she was doing when she bought you savings bonds as a kid. Bonds are pretty much a sure thing, and they're a fantastic form of investment. U.S. government bonds have a tremendous history, and they're almost free of risk. Remember, the point of your long-term investments is not to gamble. Buying bonds early can ensure your financial future, and like the other choices on this list, they allow for a lot of flexibility.

With any investment, you should weigh potential losses before you buy, and talk to a financial advisor if you can find one you trust. If you can't, try talking to the people at your bank. After all, investment is their business. Be frank about your budget and know how much money you can spend on a long-term product annually. In a while (probably a fairly long while), you'll be enjoying the fruits of your early planning.