8 Ways to Double Your Money by Investing

8 Ways to Double Your Money by Investing
Strategies for success
Contrary to popular belief, it's easy to double your money by investing. What's not easy is doubling your money quickly. It's a universal truth that any strategy promising to deliver quick wealth will involve a lot of risk. That's why many investors aren't comfortable putting more than 10% of their money on the line for speculative, high-reward positions.
Of course, doubling 10% of your money isn't quite as exciting as doubling all of it. There is a middle ground, though. It involves investing patiently, but then powering up your investment growth by using free sources of cash and a dash of speculation. Here are eight strategies to try.
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1. Invest in equities, and then wait
The easiest and safest way to double your money is to build a diversified portfolio of mostly equities, and then wait. The long-term average annual growth of the stock market is about 7% after inflation. At that rate, you can double your money about every 10 or 11 years.
So, that $50,000 you have in your 401(k)? Keep it invested in funds that track with the market, like an S&P 500 index fund, and it should grow to about $100,000 in a decade and $200,000 in two decades.
Keep in mind that the stock market doesn't grow at an even pace from year to year. You can expect volatility in the short term, but that should even out to growth over periods of 10 years or more.
ALSO READ: 3 Bargain-Priced Value Stocks That Could Double Your Money
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2. Invest your raises and spare change
Free money is as effective in the stock market as any hard-earned dollar. If your household budget is already balanced, you can probably identify at least a few sources of free cash available to you today. Spare change in the couch is one. But more valuable are shopping rebates, savings from clipping coupons, tax refunds, cash birthday gifts from grandma, and -- the big ones -- bonuses and raises from work.
Individually, these activities may not produce a lot of cash. But if you direct the proceeds into your investment account, you have a higher balance available to double every decade.
As an example, say you wrangle up $25 monthly and use it to make higher 401(k) contributions. In 10 years at 7% growth, you'll add more than $4,000 to your account balance. That's a nice return on coupons and spare change.
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3. Use your employer match
A much larger source of free money is the employer match available in your 401(k). Employer match often doubles your money immediately, and then again over time.
If your employer matches your retirement contributions dollar for dollar, whatever you contribute up to the cap is automatically doubled. If the match rate is something different, say $0.50 for every $1 you contribute, you're still doubling a portion of your contributions up to the cap. Even better, those employer-funded deposits become far more valuable over time.
Say you make $50,000 a year and you are earning 5% of your salary in employer match. Invest those matching contributions in equity funds, and they can grow to $100,000 over 20 years -- or more if your annual raises outpace inflation. Plus, you'll have at least that much in your account from your own contributions, too.
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4. Work your tax perks
401(k)s, IRAs, and health savings accounts (HSAs) all allow for tax-deferred earnings growth, which is essentially another source of free cash. Instead of sending money to Uncle Sam, you can leave those funds invested in your account, where they will double over time.
Think of it this way. A 25% tax rate for state and federal taxes lowers your net investment earnings by 25% and slows the time it takes to double your money, also by 25%. Specifically, a 7% growth rate doubles your money about every decade, but if your growth is 5.25% after taxes, it takes 13 or 14 years to double your money.
The takeaway? Use your tax-advantaged accounts to the full extent possible. You'll double your money faster.
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5. Reinvest your dividends
Reinvesting dividends also expedites your doubling time significantly. Remember that 7% average annual growth rate for the stock market? Only part of that 7% comes from share appreciation. Dividends contribute 1 or 2 points of growth every year.
Let's say your portfolio delivers 5% share appreciation and 2% dividends each year on average. Spending those dividends is similar in effect to paying taxes -- you end up with 5% net growth at year-end instead of 7%. At 5% growth, you're waiting more than 14 years to double your investment. Reinvest the dividends, though, and you shorten that doubling time by about four years.
5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.
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6. Buy in downturns
Legendary investor Warren Buffett said, "Be greedy when others are fearful." If you have the fortitude to buy when share prices are falling, you should benefit nicely from the recovery that will inevitably follow.
The coronavirus crash in March 2020 is a great example of the opportunity that lies in market volatility. The S&P 500 closed above 3,300 on Feb. 19, 2020. By March 23, the index closed below 2,240 -- a drop of nearly 34%. Since that low point a year ago, the index has increased in value by more than 70%. That's not quite a doubling, but it's on the fast track.
The risk in this strategy is that most bear markets don't turn around that quickly. To protect against an uncertain timeline, only invest money you won't need for at least five years.
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7. Invest in leveraged funds
Leveraged funds use borrowed money plus derivatives to amplify investment returns of an index by a stated multiple. ProShares UltraPro S&P 500 (NYSEMKT: UPRO), for example, targets daily returns that are 300% of the S&P 500. The daily reference is important; the fund may not reach that 300% goal over longer periods of time. That's only one reason why leveraged funds should not be long-term fixtures in your portfolio.
Another, more compelling reason is that the tripling goes both ways. If the S&P 500 rises by 10%, a fund like UPRO should go up by 30%. But if the index falls by 10%, that ETF will likely lose 30% of its value. Most investors don't want that much volatility.
If you think you can handle the ride, keep the timeline short and don't put in more than you're willing to lose.
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8. Speculate
You can also speculate on smaller companies and IPOs to target high returns that would shorten your doubling time. You can buy individual stocks, but that requires a huge time commitment for research and analysis.
Most investors starting out will prefer the ease and diversification of an ETF like Renaissance IPO ETF (NYSEMKT: IPO). The fund invests in the largest and most liquid IPOs, periodically removing companies that no longer fit the criteria or have been public for two years. The ETF grew more than 100% in 2020, but that annual performance has not been replicated in any other year. The fund's five-year annualized returns are about 30%.
5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.
Previous
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Risk and reward
In time, you can double your money in the stock market with only a moderate level of risk. Simply use a tax-advantaged account to invest monthly in an S&P 500 index fund or similar position that produces market-level returns. If you want to speed up the timeline without adding risk, invest every cash windfall and your raises, too.
Leveraged funds, small caps, and IPO funds can give you a shot at higher returns, but these come with added risk. Protect yourself against the downside by holding these riskier choices to less than 10% of your portfolio.
Catherine Brock has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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