How to double the money | 5 ways to multiply your money
Finding the optimal way to multiply your money is one of your proudest accomplishments. Here’s how to multiply your money more effectively and realistically. Today, many entities make false promises to double the money, especially when the greed of novice investors with little knowledge of the field increases, and these entities are often fraudulent. Perhaps the desire to multiply the money comes from the depth of the investor psychology we all have, the part of us that risks some of what we own in order to achieve more. In your path towards searching for the best way to multiply money, there are two important interrelated elements that you must take into account: time and the level of risk. This time element indicates your investment time horizon and risk tolerance level.
How do you double your money?
There are many ways that can be great answers to the question of how to multiply your money, but before moving on to know them, you should take a few things into consideration. As we mentioned earlier, the element of time and risk are important, as you must define them before embarking on the search for a way to multiply your money.
Your investment time horizon is a critical determinant of the amount of investment risk you can handle and generally depends on your age and investment goals. For example, a young investor is likely to have a long-term investment horizon, so he can take a significant amount of risk because time is on his side when it comes to recovering from any losses. But what if he is saving up to buy a house by the end of next year? In this case, their risk tolerance level will be low because they cannot a lot of capital in the event of a market downturn, which could jeopardize their primary investment objective of buying a home.
Similarly, the traditional investment strategy suggests that people who are of retirement age or about to retire should have their money distributed in “safe” investments such as bonds and bank deposits, but in the era of ultra-low interest rates, this strategy has its own risks, especially in the event of loss Purchasing power in times of inflation. Additionally, an individual retiring in their 60s is likely to have a decent pension with no mortgage or other obligations.
Let’s now turn to the time and risk component of the investment itself. An investment that has the potential to double your money in a year or two is undoubtedly a more exciting investment than one that might do so in 20 years. The problem here is that an exciting, high-growth investment will definitely be more volatile than the fixed type of investment. The higher the volatility of an investment, the greater the risk. This increased volatility or risk is the price the investor pays for the the potential for higher returns.
The risk-reward parallelism principle refers to the fact that there is a strong positive relationship between risk and return. The higher the expected returns from the investment, the greater the risk that the investor has to bear, and the lower the expected returns, the lower the risk.
How long does it take to double your money?
The Rule of 72 is a well-known acronym for calculating how long it would take for an investment to double if its growth was doubling annually. Simply divide by 72 by the expected annual rate of return. The result is the number of years it will take you to double your money.
When dealing with low rates of return, the Rule of 72 provides a fairly accurate estimate of how long it will take. However, this estimate becomes less accurate with extremely high rates of return. The table below compares estimates of the time it takes to double money according to this rule of 72:
5 ways to double your money
Doubling your money is actually a realistic goal that most investors can strive for and it is not as daunting a prospect as it may initially appear to a new investor. However, there are some things to be careful of:
Be very honest with yourself about your risk tolerance. Finding out that you don’t have the nerve to face volatility when the market is down 20% is the worst possible time to make that discovery and can be very detrimental to your financial well-being.
Don’t let the emotions that drive most investors like greed and fear negatively affect your investment decisions.
Be very careful about get-rich-quick schemes that promise guaranteed high results with minimal risk, because there is no such thing. Since there are many more investment scams out there than sure bets, you should be wary whenever you promise results that sound too good to be true. Whether it’s your broker, your son-in-law, or a late-night commercial, take the time to make sure someone isn’t using you to double their money.
In general, there are five of the most important ways to multiply money that you can adopt. The method you choose should largely depend on your appetite for risk and your investment schedule. You may also consider adopting a combination of these strategies to achieve your goal of doubling your money.
The classic way
Investors who have been around for a while will remember the classic Smith Barney commercial from the 1980s in which British actor John Houseman tells viewers in plain tone that they make money the old-fashioned way.
When it comes to the traditional way of multiplying money, this commercial is not far from the truth. The time-tested way to multiply money over a reasonable period of time is to invest in a solid, well-balanced portfolio that is diversified between blue-chip stocks and investment-grade bonds.
The S&P 500, the most widely followed index of blue-chips, returned about 9.8% annually (including dividends) from 1928 to 2020, while investment-grade corporate bonds returned about 7.0% annually.
over a period of 93 years. Thus, the classic 60/40 portfolio (60% stocks, 40% bonds) would have returned about 8.7% annually over this time. Based on the rule of 72, this portfolio should double in about 8.3 years, and quadruple in about 16.5 years.
Note, however, that a lot of volatility comes with a good amount of returns. Investors should prepare for sometimes sharp declines, such as the 35% drop in the S&P 500 that occurred in the span of six weeks in the first quarter of 2020 as the coronavirus pandemic raged across the world.
In addition, returns that are very high compared to the historical benchmark may reduce the likelihood of future returns. For example, the S&P 500 recovered from its 2020 slump in record time and made its way to new highs by the end of 2020. Although it returned an impressive total return of 100% from 2019 to 2021, such excellent returns It could mean that future returns of the S&P 500 could be much lower.
What about real estate?
Real estate is another traditional way to build wealth and multiply money, although it may be much less attractive in times like today when North American home prices have risen to record levels in many areas.
However, it was during the real estate boom that the prospect of doubling one’s money proved irresistible to many investors because the massive amount of leverage offered by mortgage financing can really increase returns. For example, making a 20% down payment on a $500,000 investment property requires the investor to save $100,000 and take out a mortgage of $400,000. If the value of the property rises 20% to $600,000 in the next few years, the investor would have $200,000 equity in it, which is twice the original investment of $100,000.
the opposite way
Even the most non-adventurous investor knows that there comes a time when you should buy some asset, not because everyone thinks it’s a good investment and gets into it, but because everyone gets out of it.
Just as great athletes go through slumps when many fans turn their backs, stock prices of other great companies sometimes slump, which improve as fickle investors come to the rescue. As it was once said by Baron Rothschild, smart investors buy when there is blood on the streets, even if the blood is their own.
Nobody argues that you should buy a stock that is bad and in a downtrend. The point is, there are times when good investments become oversold, providing a decent buying opportunity for investors who have done their research and made sure that the stock has good growth potential.
Valuation metrics used to measure whether a stock can be oversold include the price-to-earnings ratio and book value. Both metrics have well-established historical benchmarks for both broad markets and specific industries. When companies fall behind these historical averages for superficial or systemic reasons, savvy investors gloat at the chance to double their money.
By relying on this method of multiplying money, you will be going against the prevailing trend. It therefore requires a greater degree of risk tolerance and a great deal of due diligence and research. As such, this method is best left to highly experienced investors and is not recommended for the conservative or inexperienced investor.
The safe way to double your money
Just as a fast lane and a slow lane can eventually get you to the same place, there are other fast and slow ways you can use to double your money. If you prefer to play it safe, bonds can be a hair-less journey to the same destination.
For the uninitiated, zero coupon bonds may seem intimidating and easy to understand. Instead of buying a bond that rewards you with a regular interest payment, you can buy the bond at a discount to its final value at maturity.
Another hidden benefit is the lack of reinvestment risk. With standard coupon bonds, there are challenges and risks of reinvesting interest payments when they are received. With zero coupon bonds, there is only one payout and it comes when the bond matures. On the other hand, non-coupon bonds are very sensitive to changes in interest rates and can lose value as interest rates rise. This is a risk factor that must be considered by an investor who does not intend to hold a zero coupon bond until maturity.
The US Treasury’s Series EE savings bond is another attractive option for conservative investors who don’t mind waiting to double invest. Although the current interest rate is 0.10% which is considered trivial for bonds issued between November 2021 and April 2022, it does come with the guarantee that the bonds sold now will double in value if held for 20 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 earnings are subject to federal income tax.
How to multiply money through speculation
Although slow and steady may work in favor of some investors, others may find themselves falling asleep at the wheel. For people with a high risk tolerance and some investment capital they can afford to lose, the fastest way to increase their money may be to use powerful strategies such as options, margin trading, cash stocks and, more recently, cryptocurrencies as well.
Stock options can be used to speculate on the shares of any company that the investor believes will see a rise in price. For many investors, especially those who have their fingers on the pulse of a particular industry, options can significantly boost the performance of their portfolio. This means that the company’s price may only need to increase by a small percentage in order for the investor to grow and multiply his money. He should just be careful and make sure to do his research before making any decision.
For those who do not want to learn the ins and outs of options, but want to capitalize on their belief or doubt about a particular stock, there is the option of buying on margin or selling the stock short. These two methods allow investors to essentially borrow money from the brokerage house to buy or sell more shares than they already have, which in turn greatly increases their potential profit. This method is not for the faint of heart. A margin call can get you back into a corner, and short selling can lead to immeasurable losses.
Good research skills can grow money. You can choose one of the many formerly excellent companies whose prices have fallen to less than a dollar or you can invest some money in a company that looks like the next big company. Cheap stocks can double your money in one trading day. Just keep in mind that the low prices of these stocks reflect how most investors feel about them. So be careful.
With Bitcoin becoming more and more popular recently, other cryptocurrencies have emerged in recent years as one of the preferred ways for speculators to make a quick profit. Although Bitcoin rose by 60% in 2021, its performance has begun to wane recently, but many other currencies, on the other hand, are rising and thriving. Unfortunately, the cryptocurrency arena is a breeding ground for scammers, and there are many cases where cryptocurrency investors lose a great deal of money by getting scammed. So investors willing to speculate in cryptocurrency should be very careful when putting their hard-earned money into any cryptocurrency.
Retirement accounts way to double the money
Retirement savings accounts are the best way to multiply money. This method isn’t as exciting compared to other ways to multiply your money, but getting 50 cents automatically for every dollar you save is hard to beat.
Even better is the fact that the money that goes into your retirement savings plan, provided by your employer, directly benefits from what your employer provides to the IRS.
If you don’t have access to an employer-sponsored retirement savings plan, you can still invest in individual retirement accounts. Try to look for accounts that don’t pay a lot of taxes so that you can get the most out of your savings.
Frequently Asked Questions
How do you double your money?
The answer to this question depends largely on your risk tolerance level, your investment time horizon, and personal preferences. A balanced approach that includes investing in a diversified portfolio of stocks and bonds works for most people. However, those with a high appetite for risk may prefer to indulge in more speculative activities such as cheap stocks or cryptocurrencies, while others may prefer to multiply their money through real estate investments.
Can an investor use all five methods in his quest to double his money?
Yes, of course. If this is possible, then the investor can take advantage of this feature. Try to invest in a diversified portfolio of stocks and bonds and consider going against the trend when the market is going down or up. If you feel like taking risks and want some rewards, set aside a small portion of your portfolio for more aggressive strategies and investments (after doing the necessary research). Save regularly for for a home and keep the down payment in a savings account or other relatively risk-free investment.
Should I invest in cryptocurrency?
If you are a conservative investor with a low risk tolerance, you should not invest in cryptocurrency. Cryptocurrencies are highly speculative investments, and although many of them generated huge returns in 2021, their massive volatility makes them unsuitable for conservative investors.
Disclaimer: The content of this article is for informational purposes only. The information provided should absolutely not be considered as investment advice or a recommendation. No warranty is made, express or implied, as to the accuracy of the information or data contained herein. Users of this article agree that Money Secrets does not accept responsibility for any of their investment decisions. Not every investment or trading strategy is suitable for anyone. See the risk warning statement.