%20(3)%20(2).jpg)
Taking a long-term approach to investing is one of the most effective ways to ride out market volatility and grow your wealth over time.
For example, while the S&P 500 can experience short-term declines of up to 30% in a single year (as we are currently seeing), historical data indicates an average annual return of approximately 10% over the past century. By investing for the long term, individuals can capitalise on steady growth while reducing exposure to short-term market fluctuations.
Please note: this article is intended for educational purposes only and does not constitute financial advice or a recommendation to invest in any specific asset or strategy.
For UK investors seeking to build wealth over time, the following five long-term investment strategies present compelling opportunities.
1. Exchange-Traded Funds (ETFs)
ETFs are widely considered a cornerstone of many long-term investment strategies. Known for their diversification, low fees, and resilience, they allow investors to gain broad exposure to markets without betting on individual stocks. However, selecting the appropriate ETF requires careful consideration of its structure and allocation.
Most ETFs track indices weighted by market capitalisation, meaning larger companies exert a disproportionate influence. For example, in the S&P 500, the five largest companies account for nearly 30% of the index, potentially skewing exposure. Investors preferring a more balanced approach may opt for equal-weighted ETFs, where each constituent has an equal share of the fund.
Key Consideration: It’s important to review a fund’s sector and regional allocations—these details are usually available on the provider’s website. Taking the time to understand where your money is actually being invested can be well worth the effort. For instance, many "All World" funds are heavily weighted toward the U.S., with over 60% of holdings in American companies. In some cases, nearly 20% of the entire fund may be concentrated in just nine stocks out of thousands. (Popular Vanguard ETF Breakdown Example)
Historically, global equity markets have delivered annualised returns of approximately 7% over the past 200 years. While ETFs may not offer the exponential gains of higher-risk, higher-return investments, they remain one of the most reliable vehicles for sustained capital appreciation.
2. Venture Capital Investments (EIS and SEIS)
For investors willing to accept higher risk in exchange for potentially significant returns and substantial tax reliefs, the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are highly attractive options.
These schemes offer:
- Up to 50% income tax relief
- Capital gains tax deferral
- CGT-free gains
- Inheritance tax relief after 2 years
- Loss relief in the event of an unsuccessful investment
While these tax advantages help mitigate risk, one key drawback is liquidity. Shares in EIS and SEIS companies are not publicly traded and typically require a 3 to 7-year holding period before an exit opportunity arises, sometimes nearing 10 years. Whilst this might turn some away, it might also be what attracts certain people looking for long-term investment strategies.
With EIS and SEIS investments being one of the core focuses at GCV, we only present a select number of carefully curated EIS opportunities each year. These opportunities are designed to deliver exceptional returns, with our exits having delivered returns of up to 75x for our investors, while offering substantial tax reliefs. Our dedicated investment team meticulously evaluates over 750 opportunities annually, offering only the best to our investor network.
In addition, through GCV Labs, our dedicated venture builder team, we work alongside a number of our portfolio companies to enhance their growth and scalability, ensuring they achieve their full potential. This close connection allows us to provide deeper insights and support across various areas, from software development to marketing strategies.
By joining GCV Invest, an exclusive network for experienced investors, you gain access to EIS-eligible opportunities that target an average of 10x returns alongside EIS tax reliefs.
3. Gilts and Bonds
For more risk-averse investors, gilts (government bonds) and corporate bonds can offer a more stable and predictable form of investment and have long been considered good long-term investments. These securities are considered lower risk as they are issued by government or reputable companies. Gilts, in particular, are backed by the UK government, which makes them a safer choice for long-term investors seeking reliable income without the volatility of equities or the risk of venture capital.
However, it’s important to note that bonds typically offer lower returns compared to equities (which can significantly impact your portfolio’s growth over the long term), and they do not benefit from compounding interest in the same way that other investments, such as stocks or ETFs, often do. As a result, most financial advisors would caution against allocating too much of your portfolio to bonds, particularly in the early stages of your investment journey. Younger investors are generally encouraged to take on more risk, with a higher allocation
n to stocks and equities to maximise long-term growth potential. In many cases, bonds make up only a small portion—or none at all—of a young investor’s portfolio.
As individuals approach retirement age, transitioning to lower-risk investments becomes more important, and this is where bonds can play a crucial role. Bonds offer consistent income and are ideal for wealth preservation. As people near the point when they need to access their pension, increasing the proportion of bonds in their portfolio can help to preserve wealth and reduce volatility in anticipation of retirement needs.
Currently, 10-year gilt yields hover around 4.5%, making them an attractive alternative to savings accounts, especially when considering the tax advantages of investing through an ISA or SIPP (Self-Invested Personal Pension). Though the returns may not be as high as those from equities or venture capital investments, gilts can provide consistent income through coupon payments, which are typically paid every six months.
Market Insight: Gilts are particularly valuable during periods of economic uncertainty. For instance, during a recession or when inflation and interest rates rise, it often leads to higher gilt yields. Conversely, in times of economic expansion, gilt yields tend to fall, so investors may need to adjust their strategy based on economic conditions.
For investors seeking bonds with higher returns, albeit with increased risk, property bonds present a compelling option. These bonds often offer shorter timeframes and higher returns, making them attractive to those willing to take on additional risk in exchange for the potential for better rewards.
For example, products such as the Carlton Bonds 4-Year Fixed Bond offer up to 10% interest p.a., providing an opportunity for higher income while maintaining a fixed timeline for returns.
4. Self-Invested Personal Pensions (SIPPs)
Self-Invested Personal Pensions (SIPPs) combine the tax advantages of traditional pension schemes with greater investment flexibility. Investors can allocate capital across a wide range of assets, including ETFs, bonds, and, in some cases, venture capital opportunities.
As with all pension schemes, SIPPs are designed for long-term growth. Withdrawals before the age of 55 (rising to 57 from 2028) are subject to penalties and loss of tax relief. Contributions also benefit from tax relief at an individual’s marginal rate, and investments grow free from capital gains tax and income tax within the SIPP wrapper.
For those seeking a tax-efficient investment vehicle with greater control over asset selection, SIPPs represent an attractive option. However, for individuals requiring greater liquidity, a Stocks and Shares ISA may be more suitable.
Key Point: SIPPs are suited to knowledgeable investors who seek greater control and flexibility, a wider range of investment options, and higher returns from their pension savings.
Furthermore, SIPPs can be advantageous for people with larger pension pots who want to consolidate multiple pensions into a single plan to streamline their investments, simplify administration, and have a better overview of their retirement savings.
SIPPs require active management and involve risks associated with investing in financial markets, so if you’re less experienced or prefer a more hands-off approach to pension investments, other pension solutions may be better suited to your needs.
5. Lifetime ISAs (LISAs)
Lifetime ISAs (LISAs) offer a 25% government bonus on contributions, making them an effective tool for first-time homebuyers and long-term retirement savers. Investors can contribute up to £4,000 per tax year, receiving a maximum bonus of £1,000 annually, with funds growing free from capital gains and income tax.
As with all tax-advantaged accounts, LISAs come with restrictions. Withdrawals are penalty-free for:
- First-time property purchases – The home must cost £450,000 or less, and the LISA must have been open for at least 12 months.
- Retirement – Funds can be accessed tax-free from age 60.
- Other withdrawals incur a 25% penalty, effectively reclaiming the government bonus and slightly reducing the original contribution.
Combining a Lifetime ISA (LISA) with a diversified ETF portfolio can be a powerful way to achieve long-term growth while benefiting from the government’s 25% bonus. This approach suits individuals aiming to build a retirement pot or save for a first home.
Cautionary Point: While ETFs generally perform well over the long term, they are subject to short-term market volatility. A sudden market dip shortly before you plan to withdraw funds—such as when purchasing a property—could reduce your portfolio's value by 10–30%. For this reason, a LISA invested in ETFs may not be ideal for short-term goals.
If you're planning to invest over several years and have flexibility around when you access your funds, this strategy could be one of the most effective long-term investment options available. For those needing greater flexibility or access in the near term, a Stocks and Shares ISA might offer a more suitable alternative.
Final Thoughts: Choosing the Best Long-Term Investments for You
There really is no single “best” long-term investment strategy. Exchange-traded funds (ETFs) offer broad diversification and consistent returns, while venture capital opportunities like EIS and SEIS provide high-growth potential alongside generous tax reliefs. Gilts and bonds bring stability, SIPPs support flexible pension planning, and Lifetime ISAs (LISAs) offer tax-efficient savings with government bonuses. Whatever your goals, there’s a strategy to suit every type of investor.
If you're a high earner, adding tax-efficient investments to your portfolio could be a smart move. And if you're just starting out, using a LISA to begin saving for a home or retirement could make a big difference in the long run.
Ultimately, the best investment is the one that works for your unique situation—balancing risk, reward, tax efficiency and the future you want to build.
As with all investment decisions, diversification is key. By carefully exploring your options and building a well-balanced portfolio, you can enhance long-term growth while making the most of the tax-efficient tools available.
