There are many ways to multiply your money, but some are best for certain kinds of investors. Find out a few of the main options below.
It may sound a little far fetched, but doubling your money is a possibility that you should seriously consider. You can do this by relying on proven and time-tested strategies.
It won’t happen overnight, so don’t look for a get rich quick scheme. Instead, learn more about investments (and the right investment), manage your money well, and have patience. In this article, I’ll give you some ideas and methods to start down the path of doubling your money. Let’s first start with a tried and true method.
Grow Your Investments Slowly
This is the traditional way of doubling your money. This time-tested strategy involves a non-speculative portfolio, which contains investments divided between investment-grade bonds and blue-chip stocks. Your money will not double within a year or two. But it will after a certain period owing to the rule of 72.
The rule of 72 is a well-known shortcut, which allows you to quickly determine how long it will take for your money to double with compound interest. You have to divide 72 by your projected yearly rate of return. This formula is a simple version of a much more complicated logarithmic expression that requires a scientific calculator or log tables.
You can make several reasonable approximations to obtain realistic values for your returns. For your blue-chip stocks, you can employ a growth rate of 10% since this is the average rate of return for these securities over the past several decades.
You can also include a rate of 6% for investment-grade bonds as this is the rate at which these assets have grown over the same time frame.
Hence, if your portfolio contains both of these asset classes in roughly equal amounts, then you can safely assume an overall rate of 8% annual return. This might seem aggressive to some, but I think it’s a safe assumption if you’re investing in the right assets.
When you use this rate in the rule of 72, you may be surprised to discover that your wealth will double in just nine years. That means you will have twice the amount of your current portfolio within just a decade. In eighteen years, your investment will quadruple. That means that you will have four times the amount of your current portfolio within two decades, which is an awe-inspiring rate of growth.
The rule of 72 is wholly accurate, even with low rates of returns. For instance, if you use an annual rate of 2%, the rule of 72 will give you 36 years, whereas the actual time is 35 years. This represents a minimal difference of just 1 year. With a 7% and 9% annual rate of return, the difference between the approximate and actual value of doubling time is virtually zero.
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This is an old investment trick. In this strategy, you will be buying stocks in bulk not because the market is good (on the contrary, it is in freefall), but because panicked investors are frantically selling shares due to a recession or depression. It might appear illogical to buy a lot of plummeting stocks while all investors are fleeing, but this technique is based on proven and time-tested historical record.
The stock market has always rebounded even after the worst recessions. Remember, no matter how dire the situation appears, there is still light at the end of the tunnel. So this is an excellent opportunity to obtain as many shares of blue-chip stocks as you can.
One of the virtues of smart investors is that they see opportunities even during times of great adversity. Instead of following the crowd blindly, they analyze the situation to see which potentially lucrative stocks can be bought for an excellent bargain.
This is the ideal strategy of some of the most prominent investors with long investment history, including the Rothschilds. One reason why they are so wealthy and successful is that they have been using this strategy earlier than anyone else. Hence, they have made the most significant gains.
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But you should be careful not to purchase useless stock, that is, a stock that will not perform well even during better market conditions. You should take advantage of this opportunity to buy worthwhile blue-chip stocks and other promising equities. Hence, you must do your research before the opportunity presents itself. There is simply no shortcut to proper old fashioned research.
The classic parameters, which indicate whether or not a stock is being oversold, are the book value and the price-to-earnings ratio. Both metrics have a well established historical record spanning several decades across several markets and specific sectors. When company equities dip below historical values for these two parameters, smart investors know that it is time to purchase stocks that will perform well when the market eventually recovers.
You can also double your money slowly by making low-risk investments. With bonds, it might take more time for your money to increase, but it eventually will. This is an excellent option for the risk-averse and those who are approaching or past retirement.
You can consider purchasing zero-coupon bonds and even U.S. savings bonds.
For those with little investment experience, zero-coupon bonds may sound complicated and even unprofitable. However, they are easy to understand, and if used judiciously, they can be a useful addition to your portfolio. These bonds do not offer regular payment of interest. Instead, they are purchased at a discount to the value that they will yield when they eventually mature.
A numerical example may make it easier to understand. Suppose that a zero-coupon bond has $1,000 value. This does not mean that you will purchase this bond for $1,000. You will buy it at a discounted amount, say, $950. When the bond eventually matures, you will receive $1,000 from the issuing entity. You will, therefore, earn $50 when you receive payment for the bond upon maturity.
One key benefit of such bonds is protection against reinvestment risk. With conventional coupon bonds, there are risks and challenges involved with reinvestment of interest amounts when they are received. But this is not the case with zero-coupon bonds since there is just one payment when the bond has reached maturity.
In recent years, in the wake of the Great Recession, investors have shown a more profound interest in high-yield bonds since these offer a higher rate of return compared to government bonds.
In the aftermath of the 2008 economic downturn, the Federal Reserve reduced the returns offered by fixed income securities. Due to this factor, many investors started looking towards high yields for their greater returns even though they carry higher risk compared to treasury bonds. In spite of the higher risk, high yield bonds are still a safer option compared to volatile stocks.
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The slow and steady approach described above may not be appealing for some people. They are more interested in making a quick amount in a short time frame even if it involves more significant risk. People can grow their nest egg as rapidly as possible with penny stocks, margin trading, and options. But if you are not cautious with these investment techniques, then your nest egg can disappear.
You can employ different investment options, such as calls and puts, to speculate on company stocks. This can be a viable and lucrative option for savvy investors who know the ins and outs of their industry. So if you have done your research and have in-depth knowledge and insights into the industry that you intend to speculate in, then you can boost your portfolio performance with options.
Be sure to do your research before venturing into the high-risk high-return path of speculation.
However, it requires some effort to become mindful with the opportunities and drawbacks presented by options. The basic concept, however, is quite simple to understand.
What are options?
Options give you the right to execute an action by a specific date. However, taking this action is not mandatory. You may choose to discontinue from this action or execute it at your sole discretion. Options are fundamentally a contract between two parties.
Options come in two primary forms: puts and calls. A call gives you the option of purchasing the stock in question by a specific date at a particular price. A put provides you the option to sell the stock in question by a specific date at a specific price. These fixed dates are expiry dates, that is, the option is valid only for a time frame before this expiry date.
If you are not willing to exert yourself in this direction, then you can rely on selling a stock short or buying on margin. However, even for this approach, you will need to have sharp comprehension of stock performance.
In both of these stock trading techniques, investors obtain money from brokerage houses to sell or purchase more equities than what they possess. This has the potential to burgeon profits substantially.
However, both of these methods involve a high level of risk and can generate tremendous losses if you don’t make the right moves.
Extreme bargain hunting, on the other hand, can turn pennies into dollars. With this technique, you can bet on former blue-chip companies whose shares have fallen to low values. Or you can invest in a new enterprise that has excellent potential to be the next big thing.
With penny stocks, you can double your money in just one day of trading if you are resourceful enough. As a smart investor, you must realize that the low value of stocks often reflects the fickle mood of investors rather than the true worth of these securities.
You should consider the services of renowned online stock brokers to invest in such stocks. This will reduce the cost of your investments.
Related: Best Short Term Investments
Proven Way of Doubling Your Money
This may not appear to be the most exhilarating or novel way of doubling your money, but good old fashioned 401(k) plans and other employer-sponsored plans are the standard choices for many to multiply their investment.
Unlike speculation, employer-sponsored plans will not give you bragging rights, but there is little to complain about with the healthy 50% employer contributions. What makes these plans even better is the fact that they offer tax privileges which can hardly be matched by other types of investments.
Even if you do not have an employer-sponsored 401(k) retirement plan, you can still invest in a Roth IRA or a traditional IRA. Although you won’t get employer contributions, you can still enjoy substantial tax benefits.
With a traditional IRA, you will obtain similar tax benefits as the 401(k) plan. Tax is imposed on a Roth IRA when an investment is made. However, when the money is withdrawn after retirement, no tax is charged to either the principal amount or the earnings.
Both IRAs and 401(k)s are excellent choices for tax-payers. But if you are not too old, then you should consider the Roth IRA since these accounts are not taxed on capital gains. As a result, you may attain a more prosperous rate of return.
If you currently have low income, then the government may effectively contribute towards a part of your retirement savings. With the Retirement Savings Contributions Credit, your tax bill may be reduced from 50% to 10% of your contributions.
Bottom Line: Be Careful
Remember that if it is too good to be true, it probably is. This aphorism will serve you well while making investment decisions. You must keep this maxim in mind no matter what strategy you choose to deploy.
Undoubtedly, there are plenty of get-rich-quick scams, which promise to double your money in next to no time. You must remain wary whenever you are assured surprisingly high returns.
No matter what approach you employ, it always pays to accumulate as much financial knowledge as possible and gain insights into different industries. If you decide to use a brokerage service, then ensure that you make full use of all their educational resources and market reports.Topics: financial planning • Investing • Make Money • Tools & Resources • wealth