How to Double Your Money the Safe and Smart Way
Unfortunately when it comes to methods like that, the story usually ends with them not only NOT doubling their money but also losing all of their initial investment too.
Ever since I was a little boy I’ve been completely fascinated with the legitimate ways that you take one dollar and turn it into two.
The truth is that it’s actually pretty easy to do. There are lots of ways how to double your money without having to take a whole lot of unnecessary risks. You just need the patience to give it time and let it happen safely.
Here’s how that happens:
The Rule of 72 and Doubling Your Investment:
There is an extremely easy way to mentally estimate how long it will take to get your investments to double taking into the consider the effects of compound interest. It’s called the Rule of 72.
The Rule of 72 says you take the percentage of annual return you expect to make and divide it against 72. The result is how many years it will take to get there.
For example: If someone tells you that they have an investment that returns 10% per year, then you take 72 divided by 10 = 7.2 or approximately 7 years.
Of course you could use a financial calculator to figure out exactly how long it will actually take for your money to really double. This is just a quick back-of-envelope method where you don’t need a calculator.
Being Cautious of Big Unrealistic Returns:
Using the Rule of 72 equation, it seems pretty straight-forward how we can quickly double our money, right? If we want less years, then we just have to find an investment with a larger percentage yield, right?!
WRONG!! (And this is where people make their mistake.)
The first thing you have to consider is that the average return of the stock market for last 80 years or so is approximately 8 percent. Yes, some investments will return slightly more. But you can be certain that very few of them will ever (if not at all) beat this 8 percent figure over a long period of time. Unfortunately that’s just the way it is.
How is that information useful? Because it serves as a baseline for a reasonable rate of return and can help you weed out so-called investments that promise unrealistic returns.
Think of it like this. I was driving down the street the other day and saw a sign for a business that was advertising to double your money in 5 years.
5 years, huh? Let’s see: Using the Rule of 72, that means whatever these shade-sters invest in would have to return an annual percentage rate of 14.4% CONSISTENTLY!
If you’ve ever invested in the stock market, you’ll know that achieving consistent returns is pretty difficult to do; especially as you’re willing to take on more risk to get a higher percentage return. Usually consistent returns are only achieved when you invest in lower risk, lower return products (like CD’s or bonds).
Therefore, the Rule of 72 and using the annual stock market return as my baseline, I’d say that the advertisement I saw was a pretty bogus deal.
Another way to think about it: If this was such a good deal, don’t you think that everyone would be doing it to get those dynamite returns?
How to Double Your Money Safely:
Now that you know how to look out for crooked deals where you’ll probably just end up losing your initial investment, here are a few legitimate ways how to double your money if you’re willing to give it some time:
Your 401k Plan.
Your 401k retirement plan is literally the easiest place to double your money efficiently. Not only can you invest in mutual funds that will likely return an average 8 percent return over the long haul, but there are also some unique features that will help speed things up.
For example the money you invest comes out of your paycheck before taxes, so really you’re investing about 25% more than you would have if you had waited to do something with the money after you received your paycheck post taxes. Then you can also consider that most employers pay you a matching contribution for every dollar that you invest in the 401k plan. As a matter of fact, we demonstrated in this post here just how much money that can add up to in your 401k plan over time. So again – that ends up building up to be way more money over time than if you had just tried to do it on your own.
Even if you just take the average 8 percent and divide it by 72, that gives you an estimate of 9 years until your money doubles. But taking everything else into consideration we’ve brought up here, it actually could take less time than that to double your money.
Although investing in individual stocks isn’t really a great way to deliver consistent returns, you can do it intelligently. That’s what I like about dividend stocks. Not only can they grow upward like regular stocks, but they also pay you a set payment just for owning the stock. That’s good news because it “hedges” your investment. My strategy with dividend stocks is usually to pick well-known blue chip companies that pay around 3 to 4 percent returns in dividends. That way almost half of the usual average 8 percent return is practically guaranteed.
High Interest Savings Products.
Even though they don’t pay out that much right now, high interest savings accounts and CD’s will at some point be worth your time again. The Federal Reserve will at some point likely raise the national interest rates again and that will be good news for your savings. Not too long ago I had an account with Ally that was paying a steady 5 percent return. Before that I had a CD that was paying a 6 percent return per year. As far as consistent returns go, you can’t beat percentages like that.
Remember: Don’t get greedy or antsy when it comes to trying to double your money. There are no good get rick quick schemes. Stay away from products that promise you unrealistic returns. Shoot for investments that will easily double your money safely over the long haul and you’ll be glad you did.
Readers: What tricks do you use to easily and safely double your money? Has anyone else seen any ridiculous advertisements offering to unrealistically double your money in a short amount of time?