The fastest way to double your money is to fold it in half and put it in your back pocket. — attributed to Will Rogers
We would all love to double our money. Even billionaires, presumably, would love to double their money. It may seem like a difficult thing to do, but there are several ways to do it. Here are some to consider.
1. Get a 401(k) match
Let’s start with an easy way to double your money, as long as you have a 401(k) plan available at work. If you do, your employer will most likely offer you matching dollars, according to a particular formula. An example would be matching 100% of worker contributions up to 4% of salary. So if you contribute 4% (let’s say you make $100,000 and that’s $4,000), your employer will contribute another $4,000. That’s it free money, and it’s pretty much guaranteed too.
People are also reading…
There are other formulas, some more generous, others less. A common one is to match 50% of contributions up to 6% of salary. So if you contribute 6%, your employer will match you with 3%. Try never to leave that money on the table. Also note that the contribution limits for 401(k) accounts are very generous. For 2020, you can contribute up to $20,500, and if you’re age 50 or older, you can add another $6,500 to that.
2. Invest more effectively
Another strategy is to simply invest more effectively. Many of us, myself included, are guilty of simply leaving some money sitting in an account. Maybe you chose some mutual funds for your 401(k) account contributions or for your brokerage account. If you haven’t kept up with them and evaluated how they’ve performed for you, you may be in for a sad surprise.
Likewise, if you’ve just been accumulating dollars in a bank account (which I did for several years in my youth), earning very little, they could be working harder for you by investing them in more effective places.
Keep short-term money—money you expect to need five (or 10, to be more conservative) years—out of stocks and in accessible places like money market accounts or CDs. But park your long-term dollars where they are likely to grow best for you. For most of us, that is the stock market.
You can invest in stocks simply, through a low cost broad market index fund, or you can study companies and pick a few individual stocks to invest in. (Or do both!) Vanguard S&P 500 ETF (NYSEMKT: FLIGHT) and the SPDR S&P 500 ETF (NYSEMKT: SPY) are solid index funds to consider.
For individual actions, be sure to read about how to research stocks, since it is not enough to invest in large companies. You also want to invest when your stocks are undervalued — or at least not too overrated.
Consider the following types of actions:
- Stocks that pay dividends — which tend to be relatively established and can generate fairly reliable income
- growth stocks — which are linked to companies that are growing faster than average and have a lot of growth potential (although they can also be particularly volatile)
- Undervalued Stocks — that trade for less than their intrinsic value and therefore offer a margin of safety
If you are going to invest in individual stocks, focusing on only a few can be risky. then our Motley Fool Investment Philosophy recommends buying at least 25 shares and planning to hold them for at least five years. That can increase your chance of ending up with some big winners, as it will give the stock time to grow and perform.
3. Be patient
Finally, be prepared to be patient and let the composition power do your awesome work. See the table below, which shows how various regularly invested sums can grow over time:
Growing at 8% for
$10,000 invested annually
$15,000 invested annually
$20,000 invested annually
You can see that in the early years, the value of the portfolio is growing, but in the last few years, it is growing at a lot. And you don’t necessarily have to work hard to achieve such results, beyond sticking with the program and investing regularly for many years. Your money just doubles, and if your investment time is long enough, it doubles over and over again.
There are no guaranteed returns in the stock market, but for many decades it has averaged about 10% annual growth. A broad market index fund will perform similarly, so it can clearly build wealth effectively. The table above assumes an average growth rate of 8%, to be a bit more conservative.
Here are some solid approaches to building long-term wealth and doubling your money. See which strategies mentioned here you might want to act on.
10 Stocks We Like Better Than Walmart
When our award-winning team of analysts has investment advice, it’s worth listening to. After all, the newsletter they have published for over a decade, Motley Fool Stock Advisorhas tripled the market.*
They just revealed what they think are the top ten stocks for investors to buy right now…and Walmart wasn’t one of them! That’s right, they think these 10 stocks are even better buys.
Stock Advisor returns as of 02/14/21