Are you looking to double your money? With interest rates so low, it’s hard to use a bank account to make any significant amount of money these days.
In order for investors to potentially double or even triple their money, they’ll often have to take on some risk for that potential reward.
To achieve this level of returns over time, there are a number of options that come with limited risk. Meanwhile, those looking to shoot the lights out have their share of high-risk, high-reward options to choose from, too.
Below are five possible ways to double your money, ranging from the low risk to the highly speculative.
1. Get a 401(k) match
Talk about the easiest money you’ve ever made! It does not get any easier or lower risk to double your money than by taking advantage of an employer match on a 401(k) account. Then you can stick around and use the plan’s tax benefits to grow your retirement savings.
Many employers give employees money just for contributing to their own retirement account. For example, employers may match a small percentage of what you add to the account – so you put in 5 percent of your salary, and your employer adds another 5 percent. That’s the easiest, lowest-risk way to make money, and you still get all the great benefits of a 401(k) plan.
If there’s a downside, it’s that some companies do require you to remain employed for a certain period of time, often three or four years, before those matching funds are fully vested.
This 401(k) calculator can help you figure out how much wealth you can build for retirement.
2. Invest in an S&P 500 index fund
An index fund based on the Standard & Poor’s 500 index is one of the more attractive ways to double your money. While investing in a stock fund is more risky than a bank CD or bonds, it’s less risky than investing in a few individual stocks. Plus, the S&P 500 is composed of about 500 of America’s largest and most profitable firms, so it’s a strong option for long-term investing.
The S&P 500 also has an attractive long-term return, averaging about 10 percent annually over long periods. That means that, on average, you’ll be able to double your money in just over seven years. That said, the return in any single year is likely to be much different – higher and lower – than the average. And the S&P 500 can go through long losing streaks too. For example, the index had a negative return during the 2000s. The S&P 500 made up for it in the 2010s, returning 252 percent.
It’s easy to buy an S&P 500 index fund and you don’t need a lot of expertise to invest this way.
3. Buy a home
Real estate may not seem like a way to double your money quickly, given its reputation for slow-and-steady gains rather than explosive growth. But if you look at how most transactions are structured using a mortgage, you’ll quickly see that buying a home could lead to a double up.
It can actually be relatively easy to double your money by buying real estate. That’s because homebuyers often rely on the power of leverage – that is, a mortgage – to make the purchase.
For example, imagine buying a $200,000 home with a 20 percent down payment, as is typical. You’ll put down $40,000 (and we’ll exclude closing costs and similar expenses). How much must your home value increase for you to double your money? Just 20 percent. When your home increases in value to $240,000, you’ll have the original down payment of $40,000 plus a capital gain of $40,000 for a total gain of 100 percent. That’s the power of leverage.
Of course, unlike other investments here, you’ll be forced to invest further money to keep your home in good repair, keep current on property taxes and continue paying down the mortgage. That means further outlays of money, but otherwise you’d have to pay rent, and you get upside by owning.
4. Trade cryptocurrency
The volatility of cryptocurrency – whether it’s Bitcoin, Ethereum or Dogecoin – is an opportunity for speculators to make money trading. Of course, it’s an opportunity to lose money as well, but that’s always part of the trade-off if you’re looking to double your money quickly.
While many cryptos have soared over the last year, they can bounce around significantly, making it tough to hold on when they fall. It can be easy to buy high and sell low and bail out when prices crash, and you’ll end up putting money in someone else’s pocket instead of yours.
It’s easy to lose money on cryptocurrency if you can’t manage your positions, and there are much easier and lower-risk ways to double your money.
5. Trade options
Trading options is one of the fastest ways to double your money – or lose it all. Options can be lucrative but also quite risky. But to double your money with them, you’ll need to take some risk.
The biggest upsides (and downsides) in options occur when you buy either call options or put options. You could make two, three or four times your money or more. Here’s a quick overview of the two major kinds:
- A call option gives you the right, but not the obligation, to purchase a stock at a specific price by a specific date, at the option’s expiration.
- A put option gives you the right, but not the obligation, to sell a stock at a specific price by a specific time, at the option’s expiration.
You’ll pay a price to own an option contract, and that premium could increase many times in value. The downside is that the option could expire completely worthless. So you won’t want to risk all your money on the single throw of the options dice.
Traders also have the choice of lower-risk but less-lucrative options strategies, too. And while you’re at it, there’s no reason not to minimize your trading costs by going with a top broker.
How soon can you double your money? Look to the Rule of 72
Everyone wants to know how soon they can double their money. There’s actually a simple trick that allows you to quickly estimate when you can double your money. It’s called the Rule of 72.
The principle is simple. Divide 72 by the annual rate of return to figure how long it will take to double your money. For example, if you earn an 8 percent annual return, it will take about 9 years to double. So the higher the return, the faster you can double your money.
But remember it’s an estimate, so your number will give you only an approximate number. Plus, the bigger issue is if you’re investing in financial markets, your return will vary significantly from year to year. So your returns are likely to be much more lumpy each year than the averages.
If you’re looking to double your money in any reasonable time frame, you’ll need to take some risk. You simply won’t be able to earn enough from safe bank products to reach that goal. Above all, it’s important to remember that you don’t have to make the riskiest trades – ones that look more like gambling than investing – to build your fortune. You do have high-return options that can limit (but not eliminate) your risk, such as a house, S&P 500 funds and 401(k) matching.
Original source: Bankrate