When investing in the stock market, it's reasonable to expect around 10% average annual returns -- although of course some investors beat the market and do better. Still, doubling your money, or earning a 100% return, is a tall order.
That doesn't mean it's impossible, though. In fact, the tips below from three Motley Fool contributors (and successful investors) reveal a few different ways to turn $1,000 into $2,000 in 2021.
Crazy is as crazy does
Chuck Saletta: Only once in my investing career have I been able to earn an internal rate of return above 100% on my invested money within the space of a year. Even then, it was only in one account, with one very leveraged, options-based investing strategy that is not appropriate for a large part of anyone's overall portfolio. In addition, the fact that I haven't been able to replicate that success since tells me those returns were more due to luck than any other factor.
All that said, if you were to tell me I needed to double $1,000 within the space of a year or else, I would look to a variation on that theme for any shot at hope for success. After all, the advantage of options is that they provide leverage, so that when things go right, those successes are magnified. Of course, the downside of that leverage is that when things go wrong, they can go very wrong indeed.
The cornerstone of the strategy was to combine the leverage of options with a bet that goes against the grain of prevailing Wall Street wisdom. Mix them together in a margin account for even more leverage, and then hope for the following:
- That you're right, and Wall Street is wrong
- That you're proven right in the time frame allowed by the options' expiration dates
- That there isn't a market move against you before then that forces you to close your positions early
If that sounds like multiple levels of crazy all wrapped up together in a completely unstable package, you're absolutely correct -- it is. Then again, so is thinking there's a reliable investing strategy that can double your money within a year. Like me, you may get lucky once or once in a while, but luck and hope are not sustainable ways to make money in the market.
After all, a single $1,000 investment that doubled every year would be worth over $1 trillion dollars after just 30 years. If it were possible to reliably double your money in the market within a year, there'd be a whole bunch of trillionaire 60-plus-year-old investors running around by now. That there aren't tells you just how high a hurdle that really is.
Look for small players that can tap into big trends
Keith Noonan: If tasked with doubling a $1,000 investment, I'd narrow my search to small-cap companies that look poised to shape and benefit from potentially revolutionary technology trends. This is an admittedly risky approach, and often involves a healthy (or unhealthy, depending on your perspective) dose of speculation. It won't be a great fit for every investor. However, it's one I've had success with -- and one that I plan to continue employing in the future.
So, why small-cap tech stocks? For one, I think the technology sector stands out as the single best starting point for risk-tolerant investors seeking explosive returns. It's also typically easier for small-cap companies to rapidly grow their sales and earnings on a relative basis because they're starting from lower foundation levels. Business wins that would be footnotes for giant companies can power explosive stock gains for smaller players.
To give myself a better chance of backing small-cap winners, I'd be looking at companies that have the potential to see a surge of business activity or improved performance outlooks thanks to the evolution of trends including the Internet of Things, 5G, and augmented reality. Each of these potentially revolutionary technology movements remains at early stages of development and will likely produce big winners. Many of these winners probably aren't household names yet, and I think backing some younger, lesser-known players could be hugely rewarding -- even though it means taking on more risk.
I'm still decades away from retirement and plan to remain invested in the market for many years to come, so the thought of some ambitious growth bets not panning out doesn't worry me too much at this point. I'm also invested in safer, less speculative companies and believe in a balanced approach to portfolio building, even when prioritizing growth.
If you're investing $1,000 in stocks and aiming to double your investment in a year's time, you should go in with the understanding that the stocks capable of delivering that kind of return usually come with an elevated level of risk. There are things you can do to improve your chances, such as focusing on smaller companies capable of capitalizing on powerful trends, but don't be shocked if it doesn't pan out in 12-months' time. It's possible to score huge wins with somewhat speculative small-cap tech stocks, but you'll likely thank yourself for also backing some safer alternatives.
Take advantage of a sure bet
Christy Bieber: Both of my colleagues provided viable -- but risky -- approaches to doubling your money. I've got something different: a 100% surefire approach that can't miss.
It's as simple as taking advantage of your 401(k) match. If your company matches your retirement account contributions, you can earn a 100% return immediately by contributing enough to earn the matching funds. If your employer offers, say, a 100% match on your contributions up to 4% of your salary and you put in $1,000, it will immediately turn into $2,000 (either instantly or when your match vests).
Of course, the downside is that not everyone has access to a 401(k) with an employer match. If that's the case, you can't take advantage of this easy opportunity. But you can still get some free money by investing in tax-advantaged accounts. If you put $1,000 into an IRA and you're in the 22% tax bracket, you'd save up to $220 by not being taxed on your contributed amount. Since your investment would only cost you $780 but you'd end up with $1,000, you'd score an immediate and risk-free 28% return on your investment. Not 100%, but pretty impressive.
If your income is low enough to claim the saver's credit, this deal is even sweeter. You can claim a tax credit worth up to 50% of your first $2,000 in retirement contributions as a single filer or $4,000 in contributions as a married joint filer.
Say you invest the maximum $2,000 into an IRA as a single filer and are in the 12% tax bracket. You'd get the $1,000 credit. And your deduction for your IRA contribution would save you another $240 on your tax bill. Because your taxes would be reduced by a collective $1,240, your $2,000 investment would have cost you just $760 -- but you'd have $2,000 in your IRA. So now you've more than doubled your money.
Now, theoretically you can always choose to invest that $2,000 in a crazy options play or small-cap stocks that tap into trends -- if you're willing to take some chances to double it again.