Double your money is an attractive prospect, but it’s not necessarily difficult. There are many ways to make this happen, depending on how much time you have and your tolerance for risk. To double your money, you don’t have to make a speculative investment. You can have a well-balanced portfolio, or one that is just filled with low-risk bonds, and still, get the job done. As long as you’re patient and don’t rush.
Five ways to double your money
Double your money is a feasible goal that most investors can achieve, and it’s not difficult for new investors to reach. However, there are some caveats.
- Your risk tolerance should be discussed honestly with you (and your advisor if you have one). It is not a good idea to discover that you aren’t able to handle volatility during a market plunge of 20%. This could be detrimental to your financial health.
- Do not let greed and fear, which are the main emotions driving most investors, have an adverse effect on your investment decisions.
- You should be very cautious about getting rich quick schemes promising you “guaranteed” high-quality results with low risk. There are many investment scams than sure bets. Be suspicious if you are promised high-quality results with minimal risk. It doesn’t matter if it’s your broker or your brother-in-law, but make sure you aren’t using your money to double yours.
There are five main ways to double your money. Your investment time and appetite for risk will determine which method you choose. To double your money, you might also consider combining these strategies.
1. The Classic Way
Investors who have been around a while will be familiar with Smith Barney’s 1980s commercials, in which John Houseman (a British actor) informs viewers that they make their money the old-fashioned method–they earn it.
The commercial about the best way to double your money isn’t too far off the mark. The best way to double your money in a reasonable time frame is to invest in a solid portfolio that’s balanced between investment-grade bonds and blue-chip stocks.
The S&P 500 Index, the most popular index of blue-chip stocks, returned 9.8% annually (including dividends) over a 93-year span. Investment-grade corporate bonds returned 7.0% annually.
A classic 60/40 portfolio (60% equities and 40% bonds) would have earned 8.7% per year over this period. According to the Rule of 72, such portfolios should double in 8.3 years and quadruple within 16.5 years.
However, it is important to remember that such impressive results often come with a lot of volatility. Investors should be prepared for sharp drawdowns such as the 35% plunge of the S&P 500 in six weeks during the first quarter of 2020 when the global coronavirus pandemic hit.
Additionally, historical norms may have lower returns than historical norms. The S&P 500, for example, recovered in record time from the 2020 plunge and powered to new records by the year-end 2020. The S&P 500 returned a staggering 100% total return from 2019-2021. However, future returns could be much lower.
What about Real Estate?
Although real estate is another traditional method of building wealth, it can be less appealing at times such as the current, when North American housing prices have risen to unprecedented levels in many areas, Real estate investments are less attractive due to the possibility of rising interest rates.
However, investors can double their money during booms in real estate. The huge leverage that mortgage financing provides is a great way to boost returns. An investor would need to pay $100,000 down and obtain a mortgage for $400,000. To make a 20% downpayment on a $500,000 investment property, an investor would have to borrow the remaining $345,000 from a lender. The investor will have equity equal to $200,000 if the property appreciates by 20% to $600,000. This is double the initial $100,000 investment.
2. The Contrarian Way
Even the most inexperienced investor will know that you have to buy at some point. Not because everyone else is getting in on a good deal, but because everyone else is getting out.
Stock prices can sometimes slump when many people turn their backs to great athletes. This happens just like great athletes experience slumps. According to Baron Rothschild, smart investors “buy when blood is in the streets,” even if it is their blood.
No one is suggesting that you should purchase garbage stocks. Investors who do their research will find those good investments are sometimes oversold. This presents an opportunity to buy.
To determine whether a stock is oversold, valuation metrics include the company’s book value and price-to-earnings. These measures are based on historical norms that have been established for both broad markets and specific industries. Smart investors see an opportunity to double their capital if companies fall below historical norms due to systemic or superficial reasons.
Contrarian is when one goes against the current trend. Contrarian investing requires greater risk tolerance, as well as extensive research and due diligence. Contrarian strategies are best left for very experienced investors. They are not recommended for inexperienced or conservative investors.
3. The Safe Way
You can double your money in a number of ways, including the slow and fast lanes. Bonds can be a safer option if you want to make the same trip but not as exciting.
Consider zero-coupon bonds, for example. Zero-coupon bonds can seem intimidating to the uninitiated. They are actually quite simple to understand. Instead of buying a bond that pays you regular interest, you purchase a bond at a discount relative to its eventual value at the end.
The absence of reinvestment risks is one hidden advantage. Standard coupon bonds come with the risks and challenges of reinvesting interest payments after they are received. Zero-coupon bonds only pay one dividend, which is when the bond matures. Zero-coupon bonds can be very sensitive to interest rate changes and may lose value as they rise. This is something investors should consider if they do not plan to hold zero-coupon bonds to maturity.
The U.S. Treasury issues Series EE Savings Bonds. This is another option that appeals to conservative investors who are willing to wait a few decades for their investment to double. Series EE Savings Bonds, which are low-risk savings products, are only available electronically on the Treasury Direct platform. They pay interest until the bonds reach 30 years of age or the investor cashes them out, whichever comes first. The current interest rate is only 0.10% on bonds issued between November 2021 and April 2022. However, the bonds come with a guarantee that if they are held for at least 20 years, their value will double. The minimum purchase amount is $25. The maximum purchase per calendar year is $10,000. Savings bonds are exempted from local or state taxes. However, interest earned is subject to federal income taxes.
4. The Speculative Way
Some investors find that slow and steady work well, while others fall asleep at the wheel. If you have a high level of risk tolerance and a small amount of investment capital, aggressive strategies like options, margin trading and penny stocks (and in recent years, cryptocurrency) may be your best option. You can shrink a nest egg in a matter of minutes with any strategy.
Options such as calls and simple puts can be used to speculate about any stock. Options can boost a portfolio’s performance for many investors, particularly those who are experts in a particular industry.
Each stock option could potentially represent 100 shares of stock. Investors might only need to see a slight increase in the company’s stock price to be able to get one. Be careful, and do your research before you make a decision.
If you don’t wish to know all the details but still want to be able to leverage your faith in stock or have doubts about it, the options of buying on margin and selling the stock short are available. These two options allow investors to borrow money from a brokerage to buy or sell more shares. This increases their potential profits significantly. This is not a method for the faint-hearted. Margin calls can put you in a tight spot, and short selling can result in endless losses.
Extreme bargain hunting can also turn pennies into dollars. It’s possible to gamble on one of many former blue-chip businesses that have lost less than a penny. You can also invest in a company that you think is the next big thing. Penny stocks can double your money in a single trading day. Keep in mind, however, that these stocks are priced low to reflect investor sentiment.
Other cryptocurrencies have emerged as popular options for speculators looking to make quick money. Bitcoin is growing in popularity. Although Bitcoin rose 60% in 2021 it pales in comparison to the performance of 10 other cryptocurrencies (with at least $10 Billion in market capitalization) that surged 400% or more in 2021. These cryptocurrencies include Ethereum, Cardano Shiba Inu, and Dogecoin. Terra and Solana grew more than 9,000% between 2021 and 2022 but saw sharp declines in 2022.
Scammers are thriving in the cryptocurrency market, with many instances of investors losing significant amounts of money to fraudsters. Cryptocurrency investors who are interested in investing should take extra care to ensure that they do not lose their hard-earned cash.
5. The Best Way
It’s not as entertaining as watching your stock trade on the evening news. However, the employer’s matching contribution to a 401(k), or other employer-sponsored retirement plan is the undisputed champion. Although it’s not glamorous and won’t impress your neighbors, the automatic 50 cents per dollar that you save is hard to beat.
The best part is that your plan money comes directly from your employer’s report to the Internal Revenue Service. This means that every dollar they invest costs only 65-75 cents for most Americans.
You can still invest in an individual retirement account (IRA) even if you don’t have a 401k plan. Although you won’t be eligible for a company match the tax benefits alone are substantial. Traditional IRAs have the same tax benefits as a 401k, but they are not subject to an immediate tax penalty. Roth IRAs are taxed when money is invested but not when it is withdrawn at retirement.
Both types of IRA are good deals for taxpayers. If you are young, consider the Roth IRA. Capital gains are exempt from capital gains tax. This is a great way to increase your effective return. Even if your income is very low, the government can match some of your retirement savings. You can reduce your tax bill by up to 10% to 50% with the Retirement Savings Contributions credit.
Time Horizon and Risk Tolerance
The amount of investment risk you are able to handle is a key determinant of your investing time horizon. This is usually dependent on your investment goals and age. A young professional may have a long investment time horizon. This means they are able to take on significant risks as the time is there to recover from losses. What if they are saving for a house purchase in the next year? Their risk tolerance will be low in this case because they can’t afford to lose too much capital in the unlikely event of a market correction. This would put them at risk of losing their primary investment goal of buying a home.
Conventional investing strategies suggest that people nearing retirement should put their money in safe investments such as bank deposits and bonds. However, in an era with extremely low-interest rates that strategy comes with its own risks, including the possibility of losing purchasing power due to inflation. A retired person in their 60s who has a good pension and isn’t liable for any mortgage or other debts would probably have a reasonable tolerance of risk.
Let’s now discuss the risk and time implications of investing. A potential investment to double your money in one year is more exciting than one that can do the same in 20 years. This is because an investment that has a high potential for growth will almost always be more volatile than one that is “Steady Eddy”. Higher volatility is a sign of greater risk. Investors must pay higher returns for greater volatility.
How long does it take to double your money?
The Rule of 72 is an easy way to calculate how long it takes for an investment, if it grows annually, to double. Divide 72 by the expected annual return. This will give you the time it takes to double your money.
The Rule of 72 is a good estimate of the time it takes to double your investment at low returns. The Rule of 72 estimates “time to double” at high rates of return, but this estimate is less accurate. As you can see in the chart below. It compares the estimated time it will take to double an investment’s value with the actual time.
KEY TAKEAWAYS
- There are five main ways to double your money. These include a conservative strategy that invests in savings bonds or an aggressive strategy that involves speculative assets.
- Most investors will be familiar with the classic strategy of investing in a diverse portfolio of stocks and bonds to double your money.
- You can safely invest to double your money over many years. However, if you are impatient, you run the risk of losing all or most of your money.
- Be open about your tolerance for risk. Do not let fear and greed influence your investment decisions. Be cautious about getting rich-quick schemes.
Employers offer a number of tax-advantaged and retirement accounts that can help you double your money.
