Investing in the stock market can help you make a lot of money over time, and it's not as difficult as you may think to generate a substantial amount of wealth.
However, it's important to make sure you're investing in the right places. With the wrong investment, you could potentially lose more than you gain. But with the right strategy, you could double your money relatively easily. Here are three simple ways to achieve that goal.
1. Earn employer matching 401(k) contributions
Contributing to your 401(k) is one of the easiest ways to get started investing in the stock market, and employer matching contributions can help your money grow faster. Not all employers offer matching contributions, but if you have access to them, they're an easy way to double your savings with zero effort.
Say, for example, you're earning $50,000 per year, and your employer will match your 401(k) contributions up to 3% of your salary. That comes out to $1,500 per year in matching contributions, and whatever you contribute up to that point will be doubled by your employer.
To make the most of your 401(k), it's a good idea to contribute at least enough to earn the full match. Otherwise, you're leaving free money on the table.
2. Reinvest your dividends
Dividend-paying stocks are investments that pay you to own them. Some companies choose to pay a portion of their profits back to shareholders every quarter or year, and that payment is called a dividend.
When you receive dividends, you can either cash them out right away or reinvest them and buy more of that particular stock. It may be tempting to cash out to receive your money immediately. However, reinvesting your dividends can be a smart long-term strategy.
The more you reinvest, the more you can potentially earn down the road. Reinvest your dividends now, and you'll own more shares of stock. Then the more shares you own, the larger your future dividend payments will be. Reinvest that money again to buy even more shares, and the cycle continues.
Reinvesting your dividends can help you grow your portfolio without investing any additional cash out of pocket. Then once you're collecting a decent amount of money in dividends, you can start cashing them out to create a source of passive income.
3. Let compound interest work its magic
Compound interest is what helps your money grow over time. You're essentially earning interest on your interest, so the more time you have to save, the more you can potentially earn.
Say, for example, you're investing $100 per month and earning a modest 7% annual rate of return on your investments. Here's approximately how much you'd have saved depending on how many years you let your money grow:
|Number of Years||Total Savings|
Your money will grow exponentially when it has more time to compound. In this scenario, your total savings double roughly every decade. By starting to invest now and sticking with it over the long run, compound interest can do its job and help your money grow faster.
It's possible to double your money by investing, even if you don't have much experience in the stock market. By taking advantage of any of these strategies, you can earn more than you may think.