Medium-to-Long Term Investment Options: Balancing Growth and Risk

Medium-to-Long Term Investment Options: Balancing Growth and Risk

This is the second post in our series on investment options. Medium-term investments often strike a balance between safety and growth, making them suitable for goals three to ten years away. Understanding these vehicles helps you build a strategy that aligns with your timeline and risk tolerance.

Individual Bonds

Description: Bonds are debt instruments issued by governments or corporations. When you buy a bond, you’re lending money in exchange for interest payments and the return of principal at maturity.
Example:$10,000 in a 10-year Ford Motor Credit bond.

Pros and Cons: Bonds provide predictable income and lower volatility than stocks, making them useful for portfolio stability. However, returns are generally modest, and bond prices can fall when interest rates rise. Corporate bonds carry credit risk, and inflation can erode real returns over time.

Historical Returns:

• 3 years: ~2.5%
• 5 years: ~2.0%
• 10 years: ~2.3%
  Inflation-adjusted: Near zero or slightly negative long-term
  (Source: U.S. Treasury, Bloomberg)

Individual Stocks

Description: Stocks represent ownership in a company, offering potential for growth and dividends.
Example:$10,000 invested in the individual stock, "META"

Pros and Cons: Stocks offer strong long-term growth potential and liquidity, but they come with volatility and risk of loss. Success requires research and tolerance for market swings, and short-term performance can be unpredictable.

Historical Returns:

• 3 years: ~8.5%, (highly dependent on the individual company)
• 5 years: ~10.0% (highly dependent on the individual company)
• 10 years: ~11.5% (highly dependent on the individual company)
  Inflation-adjusted: Generally positive across all periods, but highly dependent on the individual company.
  (Source: S&P 500 historical averages)

Mutual Funds

Description: Mutual funds pool money from many investors into a professionally managed portfolio of stocks, bonds, or other securities.
Example:$10,000 in a balanced fund with 60% stocks and 40% bonds that is made up of 300 different individual stocks and individual bonds.

Pros and Cons: Mutual funds offer diversification and professional management, making them accessible for most investors. However, they come with management fees, limited control over holdings, and potential tax inefficiencies compared to other investment vehicles.

Historical Returns:

• 3 years: Depends on asset mix
• 5 years: Depends on asset mix
• 10 years: Depends on asset mix
  Inflation-adjusted: Depends on asset mix

Exchange-Traded Funds (ETFs)

Description: ETFs provide diversified exposure to stocks, bonds, or sectors and trade like individual stocks on an exchange.
Example:$10,000 in an S&P 500 ETF made up of the individual equities that make up the S&P 500 index.

Pros and Cons: ETFs offer low fees, tax efficiency, and flexibility to trade throughout the day. However, they can experience short-term volatility, and niche ETFs may lack diversification.

Historical Returns:

• 3 years: Depends on asset mix
• 5 years: Depends on asset mix
• 10 years: Depends on asset mix
  Inflation-adjusted: Depends on asset mix

Disclaimer

Returns sourced from U.S. Treasury, Bloomberg, Morningstar, and Bureau of Labor Statistics CPI data. Individual results may vary. Past performance does not guarantee future results.

What Should You Do?

If you’d like help reviewing your investment strategy or building a financial plan, contact us at Sculati Wealth Management. We’ll help you make informed decisions that align with your goals.