How to double your money (2024)

Doubling the money is a prospect few people would turn down, and it's not necessarily that difficult to achieve. There are actually several ways to make this a reality depending on your timeline and...tolerance for risk. You don't have to buy speculative investments to double your money. A carefully balanced onewalletor even a bank loaded only with super low-risk bonds can get the job done, provided you're patient and not in a big hurry.

Five ways to double your money

Doubling your money is actually a realistic goal that most investors can aim for, and it's not as daunting a prospect as it may initially seem to a new investor. However, there are some caveats:

• Be very honest with yourself (and your investment advisor if you have one) about your risk tolerance. Finding out that you don't have the courage for itvolatilityWhen the market drops 20%, it is the worst possible time to make this discovery and it can be detrimental to your financial well-being.
• Don't let the two emotions that drive most investors – greed and fear – negatively impact your investing decisions.
• Be extremely wary of get-rich-quick schemes that promise you 'guaranteed' sky-high results with minimal risk, because there is no such thing. Because there are likely far more investment scams than there are safe bets, be wary of being promised results that seem too good to be true. Whether it's your real estate agent, your brother-in-law, or a late-night infomercial, take the time to make sure someone knows yourvandoubleshemoney.

In general, there are five ways to double your money. The method you choose largely depends on your risk tolerance and your investment timeline. You can also consider using a combination of these strategies to achieve your goal of doubling your money.

1. The classic way

Longtime investors will remember the classic Smith Barney commercials of the 1980s, in which British actor John Houseman, in his unmistakable accent, informs viewers that "they make money the old-fashioned way - they make it."

When it comes to the most traditional way to double your money, this hype isn't far from the truth. The proven way to double your money in a reasonable period of time is to invest in a solid, balanced portfolio that is diversifiedblue chipshares andquality of investmentsbonds.

Of– the most followed index of top stocks – returned approximately 9.8% annually (inclyield) from 1928 to 2020, while investment-grade corporate bonds returned 7.0% per year over that 93-year period.A classic 60/40 portfolio (60% shares, 40% bonds) would therefore have returned approximately 8.7% annually over this period. Based onRule 72a 60/40 portfolio should double in about 8.3 years and quadruple in about 16.5 years.

However, keep in mind that such UK results usually come with a significant degree of volatility. Investors should prepare for a sharp pricedrag, such as the 35% decline in the S&P 500 within a six-week period in the first quarter of 2020 as the coronavirus pandemic took hold worldwide.

Furthermore, very high returns compared to the historical norm can reduce the potential for future returns. For example, the S&P 500 recovered from its 2020 plunge in record time, reaching new all-time highs at the end of 2020. While it delivered an astonishing 100% total return between 2019 and 2021, such stellar returns could mean that future returns of the S&P 500 could be significantly lower.

What about real estate?

Propertyis another traditional way to build wealth, although it's a much less attractive proposition in times like now, when home prices in North America have risen to record levels in many regions. The prospect of risingtenantalso reduces the attractiveness of real estate investment.

That said, during a real estate boom, the prospect of doubling your money proves irresistible to many investors, as the sheer amountaccelerationprovided by mortgage financing can significantly increase returns. For example, a 20% down payment on an investment property worth $500,000 would require an investor to put down $100,000 and take out a mortgage for the remaining $400,000. If the property increases in value by 20% to $600,000 over the next few years, the investor now has $200,000 in equity, which is double the original investment of $100,000.

2. The opposite way

Even the most adventurous investor knows that there comes a time when you have to buy – not because everyone gets a good thing, but because everyone gets out.

Just as great athletes go through recessions when many fans turn their backs, the stock prices of otherwise great companies occasionally go through crises that accelerate as fickle investors bail out. As Baron Rothschild is said to have said, “smart investors buy when there is blood on the street, even if it is their own.”

No one is saying you should buy junk stocks. The point is that there are times when good investments are madeoversold, which presents a buying opportunity for investors who have done their homework.

Valuation metrics used to gauge whether a stock may be oversold include those of a companyprice/earnings ratioInbook value. Both measures have established historical standards for the broad markets and for specific industries. When companies fall far below these historical averages for superficial or systemic reasons, smart investors smell an opportunity to double their money.

Beingcontradictorymeans going against the prevailing trend. Therefore, it requires a greater degree of risk tolerance and a significant amount of due diligence and research. As such, a contrarian strategy is best left to very experienced investors and is not recommended for conservative or inexperienced investors.

3. The safe way

Just like the fast and slow lanes of the highway eventually get you to the same place, there are fast and slow ways to double your money. If you prefer to play it safe, bonds can be a less hair-raising journey to the same destination.

To considerzero coupon bonds, e.g. To the uninitiated, zero-coupon bonds can sound scary. In reality, they are easy to understand. Instead of buying a bond that rewards you with a regular interest payment, you buy a bond at a discount to its final valuematurity.

A hidden benefit is the absence ofreinvestment risk. With standard coupon bonds, there are challenges and risks associated with reinvesting the interest payments as they are received. With zero coupon bonds, there is only one payment and that occurs when the bond matures. On the other hand, zero coupon bonds are very sensitive to changes in interest rates and can lose value if interest rates rise; this is a risk factor that should be taken into account by an investor who does not intend to hold a zero coupon bond to maturity.

Series EE savings bondsissued by the U.S. Treasury Department is another attractive option for conservative investors who don't mind waiting a few decades for the investment to double. Series EE Savings Bonds are low-risk savings products available only in electronic form on the TreasuryDirect platform.They payinterestuntil they reach age 30 or until the investor redeems them, whichever comes first. Although current interest rates are a paltry 0.10% for bonds issued between November 2021 and April 2022, they offer a guarantee that bonds sold now will double in value if held for twenty years.The minimum purchase amount is $25, while the maximum purchase per calendar year is $10,000. Savings bonds are exempt from state or local taxes, but interest income is subject to federal income tax.

4. The speculative path

While slow and steady may work for some investors, others fall asleep at the wheel. For people with a high degree of risk tolerance and a certain investment capital that they can afford to lose, oversizing is the fastest waylay eggsmay include the use of aggressive strategies such aspossibilities,margin trading,cent sharesand in recent yearscryptocurrencies. Anyone can make a nest egg super shrink just as quickly.

Stock options, like simplesetsInphone call, can be used to speculate on a company's shares. For many investors, especially those with their finger on the pulse of a specific sector, options can boost a portfolio's performance.

Each stock option potentially represents 100 shares. This means that a company's price may only need to rise by a small percentage before an investor can take one out of the park. Be careful and make sure you do your homework before trying it.

For those who do not want to learn the ins and outs of options, but want to profit from their conviction or doubt about a particular stock, there is an option to buy on shares.margeor sell a shareCard. Both methods essentially allow investors to borrow money from a brokerage firm to buy or sell more shares than they actually own, which in turn significantly increases their potential profits. This method is not for the faint of heart. Amargestortingcan get you into a corner, and short selling can result in endless losses.

Finally, extreme bargain hunting can turn pennies into dollars. You can roll the dice on one of the many former blue chip companies that have sunk to less than a dollar. Or you can put some money into a company that looks like the next big thing. Penny stocks can double your money in one trading day. Keep in mind that the low prices of these stocks reflect the sentiments of most investors.

IfBitcoinhas grown in popularity and become more mainstream, other cryptocurrencies have also emerged in recent years as one of the favorite ways for speculators to make a quick buck. Although Bitcoin is up 60% in 2021, its performance pales in comparison to as many as ten other cryptocurrencies (with amarket valueof at least $10 billion) that rose 400% or more in 2021, such asEthereum,Cardano,Shiba Inu,Dogecoin,Solana, InTerra. (Solana and Terra gained over 9,000% in 2021, but have seen a sharp decline in 2022.)

Unfortunately, the cryptocurrency arena is a fertile hunting ground for scammers and there are numerous cases of crypto investors losing a lot of money due to scams. Potential cryptocurrency investors should therefore exercise utmost care when putting their hard-earned money into any cryptocurrency.

5. The best way

Although not nearly as fun as watching your favorite stocks on the evening news, an employer's undisputed heavyweight championmatching contributionin a401(k)or other employer-sponsored retirement plan. It's not sexy and it won't impress the neighbors, but it's hard to beat automatically getting 50 cents for every dollar you save.

Even better is the fact that the money put into your plan comes directly from what your employer reports to the Internal Revenue Service (IRS).For most Americans, this means that every dollar invested costs them only 65 to 75 cents.

If you don't have access to a 401(k) plan, you can still invest in an Individual Retirement Account (IRA), eithertraditionalofRot. You won't get a company match, but the tax benefit alone is significant. A traditional IRA has the same immediate tax benefit as a 401(k). A Roth IRA is taxed in the year the money is invested, but when withdrawn in retirement, no taxes are due on the principal or gains as long as you meet the age and time requirements.

Both types of IRA are a good deal for taxpayers. But if you're young, think about that Roth IRA. No tax on yourscapital gains? It is an easy way to achieve higher effective returns. If your current income is low, the government will actually double some of your retirement savings. ThatPension Savings Contribution Creditreduces your tax bill by 10% to 50% of your contribution.

Time horizon and risk tolerance

Your investment time horizon is an extremely important determinant of the amount of investment risk you can handle and generally depends on your investment risktheIn investment objectives. For example, a young professional is likely to have a long educationinvesteringshorisont, so they can take significant risks because time is on their side when it comes to recovering from any losses. But what if they save to buy a house within a year? In that case, their risk tolerance will be low as they cannot afford to lose much capital in the event of a sudden market crashcorrection, which would jeopardize their primary investment goal of purchasing a home.

Similarly, the conventional investment strategy suggests that people nearing retirement should invest their money in safe investments such as bonds and bank deposits, but in an era of ultra-low interest rates, this strategy carries its own risk, mainly of loss of purchasing power . Throughinflation. Furthermore, a retiree in his 60s with a decent pension and no mortgage or other obligations is likely to have a reasonable risk tolerance.

Now let's look at the time and risk characteristics of an investment itself. An investment that has the potential to double your money in a year or two is arguably more exciting than an investment that could do so in twenty years. The problem here is that an exciting, high-growth investment will almost certainly be much more volatile than a stable, 'Steady Eddy' type investment. The higher the volatility of an investment, the riskier it is. This increased volatility or risk is the price an investor pays for the lure of higher returns.

How long will it take for your money to double?

The Rule of 72 is a well-known way to calculate how long it will take for an investment to double if growth increases annually. Simply divide 72 by your expected annual return. The result is the number of years it takes to double your money.

When dealing with lichenreturns, the rule of 72 gives a reasonably accurate estimate of the doubling time. However, this estimate becomes less accurate at very high returns, as shown in the chart below, which compares the "time to doubling" estimates generated by the rule of 72 (in years) with the actual number of years it would take . for an investment that doubles in value.