Best Brokers For Long-Term Investing
Long-term investing often involves buying and holding securities for an extended period. It typically offers a more stable and passive form of income versus fast-paced intraday and swing trading strategies. In this article, we list the best brokers for long-term investing in 2024. We also cover suitable assets and instruments for investors based in Europe, Australia, the UK and beyond.
Brokers With Stocks for United States
Long-Term Investing Explained
Long-term investing is where traders buy assets such as stock, with the intention of holding them for a prolonged period, usually more than a year, before selling them to generate a profit.
Unlike short-term traders that are interested in sharp market fluctuations and events that could cause a temporary spike or fall in prices, longer-term investors are focused on the bigger picture and the overall growth of an asset. The risks of short-term investing, particularly with volatile assets, were clearly demonstrated in 2021 with the rise and fall of the stock, GameStop.
Long-term traders also tend to have their own set of objectives. These usually include generating a stable, passive income that requires minimal interference and intervention. As a result, investors tend to opt for relatively safe assets, such as bonds and mutual funds.
Assets & Products
The best brokers for long-term investing usually offer a selection of the following instruments:
ETFs
Exchange-traded funds, or ETFs, track the performance of a particular index, sector or commodity, such as the S&P 500. Investors could speculate on the overall direction of the renewable car market, for example, without buying individual shares in Tesla. ETFs are derivatives so traders never take ownership of the basket of assets they track. Importantly, they can also help bring diversification to a trader’s portfolio.
Unlike mutual funds (more on that below), ETFs can be bought or sold on regular stock exchanges. Exchange-traded funds usually have an annual expense ratio, which is the total cost of managing the fund and is displayed as a percentage of the total value of assets held. The best brokers for long-term investing offer expense ratios below 0.25% per annum.
Mutual Funds
Mutual funds are similar to ETFs in that they typically contain a basket of assets, such as pharmaceutical stock. However, unlike ETFs, mutual funds do not have to be traded on a central exchange. Mutual funds can also only be purchased at the end of the trading day using a calculated price known as the net asset value. In contrast, ETFs can be bought and sold throughout the trading day.
Importantly, actively managed mutual funds normally have higher fees and expense ratios than ETFs. This could be a key consideration for long-term investors looking to keep costs down.
Index Funds
Index funds are offered by many of the top brokerages for long-term investing and track a particular index, such as the Nasdaq, FTSE or Hang Seng. They are popular because while an index like the S&P may experience losses in the short to medium-term, they tend to achieve impressive growth over 20-year periods. In fact, the S&P has achieved around 9% growth on average per annum since its inception. In 2016, Warren Buffett also famously proclaimed the benefits of index funds.
Importantly, index funds often reflect the economic outlook of a particular country. So if you think China is going to flourish over the next 10 years, you may want to invest in the Shanghai Composite Index. The leading platforms offer access to a breadth of index funds spanning markets around the world.
Stocks
Stocks can be a riskier form of long-term investment, particularly if the company is relatively new. These types of equities are often referred to as growth stocks, which means they have high potential but are considered riskier because the companies are less mature.
Value stocks, on the other hand, usually provide a safer form of investing but don’t have as much growth potential. These are typically established companies that have already achieved impressive returns, but some investors believe they remain undervalued.
Another way of categorising stocks is by large, mid and small-cap stocks. Large-cap stocks are companies with a market capitalization of over $10 billion, mid-cap stocks have a capitalization of between $2 billion and $10 billion, and small-cap stocks have a capitalization of below $2 billion. Generally, the larger the market cap, the safer the investment. The best brokerages for long-term investing offer a range of small, mid and large-cap stocks.
Bonds
Bonds are generally considered safer than stocks and are traded in the secondary market. They are fixed income products that essentially reflect a loan made between an investor and a borrower, often a company or government. The bond contains important information about the loan, including whether interest payments are fixed or variable. Bonds are generally taken out by companies and governments to finance projects and operations.
But while bond trading is often considered an effective way to diversify portfolios formed of stock and cash, they still carry risks because firms can default on their debts. With that in mind, long-term investors may want to focus on bonds from companies that have high credit ratings.
Comparing the Top Brokers for Long-Term Investing
When opening a long-term investment account, there are several key considerations:
Assets & Markets
Check what securities, derivatives and funds the broker offers. The best brokers for long-term investing offer a selection of stocks, bonds, ETFs and mutual funds covering a range of global markets. This will make it easier to diversify your portfolio. The most important thing though, is choosing a market you have a good understanding of.
Fees
Charges such as commissions and spreads are usually less of an issue for long-term investors due to the relative infrequency of their trades. However, brokers with low or zero commissions are always preferable. The best brokerages for long-term investing will have different accounts so you can choose between raw spreads and commissions or zero commissions and a markup on spreads. Also compare the annual expense ratios and management fees that are typically charged for ETFs and mutual funds.
In addition, check whether there are any deposit or withdrawal fees. Also, if an asset is quoted in a currency different to your base currency, investors may need to account for forex conversion fees. Finally, investors using leverage may have overnight charges to consider, which can quickly rack up for long-term trades.
Trading Platform
Fundamental analysis is often key when long-term investing. Traders need to understand the intrinsic value of the company they are investing in, for example. Failure to undertake a comprehensive review of assets may result in poor investment decisions.
Fortunately, the best brokers for long-term investing offer reliable platforms that come with a suite of market sentiment tools, built-in news feeds and more. The top retail trading platforms are MetaTrader 4, cTrader and TradingView.
Regulation
Choose a broker that is regulated by a reputable body such as the UK Financial Conduct Authority (FCA), the Cyprus Securities & Exchange Commission (CySEC) or the Australian Securities & Investments Commission (ASIC). The regulator will determine the level of protection you have as an investor and the extent to which your funds are protected should the broker go bankrupt.
Benefits of Long-Term Investing
- Trading costs are generally lower due to fewer transactions
- More accessible for beginners as less technical analysis is required
- Less time-consuming as it doesn’t require constant monitoring of the market
- Rates of success are often better over the long-term, particularly on major indexes
Drawbacks of Long-Term Investing
- Products like bonds may not generate huge returns
- Those seeking frequent thrills may be disappointed
- Investors can still lose money, particularly with riskier assets
Long-Term Investment Tips
Diversify
Diversification is key in long-term investing. It could be disastrous for an investor to put all of their capital in a single stock, for the company to then suddenly fail after five years. Diversification reduces your risk exposure and can increase your chance of success in the long run.
The best investors don’t just diversify in terms of different stocks but also different instruments, sectors and markets. An example of a diverse portfolio could be one containing an index fund tracking the S&P 500, a mixture of value and growth stocks, plus a selection of corporate bonds.
Rebalance
The proportion of each type of asset in your portfolio will change over time as its value fluctuates. You may start with 60% of your portfolio in stocks and 40% in corporate bonds, for example. But if the value of the stocks rise, the ratio may become 70:30 or even 80:20. At this point, you may want to rebalance your portfolio.
Importantly, the best brokers for long-term investing offer ETFs and mutual funds that automatically rebalance at certain intervals.
Discipline
The key to long-term investing is discipline. When a stock or other asset begins to drop in value, it can be tempting to cash out and limit your losses. But as we outlined earlier, although a particular asset may decrease in value in the short to medium term, focus on growth rates over the long term. Be rational and only sell if you think the value of the asset will not recover.
Bottom Line on Brokers for Long-Term Investing
Although long-term investing requires discipline and upfront capital, success rates often top short-term trading strategies. A good online brokerage firm for long-term trading will offer a range of ETFs, mutual funds, stocks and bonds. The best brokers for long-term investing also offer competitive management fees and comprehensive fundamental research and analysis tools.
FAQ
What Is An Index Fund?
An index fund tracks the overall direction and outlook of a particular stock index, such as the Nasdaq, Dow Jones or FTSE. Importantly, index funds are often considered less risky than investing in individual stocks.
What Are Expense Ratios?
Expense ratios are an annual charge imposed on those holding shares in ETFs or mutual funds. This is how many brokers that offer long-term investing products generate fees.
When Does An Investment Become ‘Long-Term’?
There is no firm rule, though many market commentators class long-term investing as securities or derivatives held for longer than one year. With that said, some investors hold positions in stocks for several decades.
What Is The Best Broker For Long-Term Investing?
There is no single best broker for long-term investing. The best provider will depend on your preferences around product and market access, management fees and trading tools. Among our top picks in 2024 are eToro and City Index.
Should I Invest In Stocks, Bonds, ETFs Or Mutual Funds?
All assets and funds have their pros and cons. Individual stocks are generally riskier than bonds, ETFs and mutual funds, particularly growth stocks, though they tend to offer greater profit potential. Choose an asset or fund that you have a good knowledge of and decide upfront how much risk you’re willing to take on and how long you can hold the position.