Figuring out how to double your money with investments often hinges on striking the right balance between risk and reward. Your personal risk tolerance and goals can influence how you invest and the returns your portfolio generates.
However, doubling your money is a reasonable goal, especially if you’re willing to wait for your money to grow. And that’s a big variable to keep in mind: Time. If you’re interested in doubling your money and growing wealth for the long-term, there are several investing strategies to consider.
Investing Strategies to Double Your Money
1. Get to Know the Rule of 72
The rule of 72 can be a helpful guideline for answering this question: How long to double your money?
If you’re not familiar with this investing rule, it’s not complicated. It uses a simple formula to estimate how long doubling your money might take, based on your annual rate of return. You divide 72 by your annual return to get the number of years you’ll need to wait for your investment to double.
So, for example, if you have an investment that generates a 5% annual return, it would take around 14.5 years to double it. On the other hand, an investment that’s generating a 12% annual return would double in about six years.
The rule of 72 doesn’t predict how an investment will perform. But it can give you an idea of how quickly (or slowly) you can double your money, based on the returns you’re getting each year. Just keep in mind that the rule’s accuracy tends to decrease as the rate of return increases, so it’s more of a guideline than a hard-and-fast rule.
💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.
2. Leverage Your Employer’s Retirement Plan
One way to attempt to double your money through investing may be through your workplace retirement plan. If your employer offers a matching contribution to the money you’re deferring from your paychecks, that’s essentially free money for you.
Employer matching contributions are low-hanging fruit, in that you don’t need to change your investment strategy to take advantage of them. All that’s required is contributing enough of your salary to your employer’s retirement plan to qualify for the match.
The matching formula that companies use varies, but some companies offer a dollar-for-dollar match, meaning that the money you put into a 401(k) would automatically double when you receive your match. Keep in mind that some companies use a vesting schedule, meaning that you have to work at the company for a certain period of time before you get to keep all the employer contributions.
Aside from potentially helping to double your money, investing your 401(k) or a similar qualified retirement plan can also yield tax benefits. Contributions made with pre-tax dollars are deducted from your taxable income, which could lower your annual tax bill.
3. Diversify Strategically
Diversification means spreading your money across different investments to create a portfolio that will meet your needs for both risk and return.
As a general rule of thumb, riskier investments like stocks have the potential to generate higher returns. More conservative investments, such as bonds, tend to generate lower returns but there’s less risk that you’ll lose money on the investment.
If you want to double your money, then it’s important to pay attention to diversification and what that means for your return on investment. For instance, if you’re investing heavily in stocks then you could see greater returns but you might experience deeper losses if the market takes a hit. Playing it too safe, on the other hand, could cause your portfolio to underperform.
Also, keep in mind that there are many types of investments besides stocks, mutual funds and bonds. Real estate, stock options, futures, precious metals and hedge funds are just some stock and bond alternatives you could use to build a portfolio. Understanding their risk/reward profiles can help you decide what to invest in if you’re focused on doubling your money.
💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.
4. Consider Buying When Others Are Selling
The stock market is cyclical and you’re guaranteed to experience ups and downs during your investing career. How you approach the down periods can impact your ability to double your money when the market goes up again.
When the market drops, some investors start selling off stocks or other investments to avoid losses. But if you’re comfortable taking risks, the sell-off could present an opportunity to buy the dip.
If you can purchase stocks at a discount during periods of volatility when other investors are selling, you could double your money when those same stocks increase in value again. But again, making this strategy work for you comes down to knowing how much risk is acceptable to you.
5. Commit for the Long Term
There are different investment philosophies you can adopt. For example, traders regularly buy and sell investments to try and get quick wins from the market. A buy-and-hold strategy takes a different approach, but it could pay off if you’re trying to double your money.
Buy-and-hold investing involves buying an investment and holding onto it for the long-term. The idea is that during that holding period, the investment will grow in value so you can sell it at a sizable profit later.
This is a passive investment strategy that relies on patience and time to increase your portfolio’s value. The longer you have to invest, the more you can capitalize on the power of compounding gains, or gains you earn on your gains.
If you’re using a buy-and-hold strategy with a value investing strategy, you could potentially double your money or more if your investments meet your expectations. Value investing means investing in companies that you believe the market has undervalued.
This strategy takes a little work since you have to learn how to understand the difference between a stock’s market value and its intrinsic value. But if you can find one of these bargain hidden gems and hold onto it, you could reap major return rewards later when you’re ready to sell.
6. Step Up Your Investment Contributions
Another simple strategy to double your money is to invest more. Assuming your portfolio is performing the way you want and need it to to reach your goals, doubling your investment contributions could be a relatively easy way to boost your returns.
If you can’t afford to put big chunks of money into the market all at once, there are ways to increase your investments gradually. For instance, you could start building a portfolio with fractional shares and increase your contributions by a few dollars each month.
If you’re investing your 401(k) at work, you could ask your plan administrator about raising your contribution rate annually. For example, you might be able to automatically bump up salary deferrals by one or two percent each year. And if that coincides with a pay raise you may not even miss the extra money you’re contributing.
7. Focus on Tax Efficiency
Minimizing tax liability is another opportunity to stretch your investment dollars. There are different ways to do that inside your portfolio.
Investing in your retirement plan at work is an obvious one, so if you aren’t doing that yet you may want to consider getting started. Remember, the longer you have to invest, the more time your money has to grow.
If you don’t have a 401(k) or a similar plan at work, you could open a traditional or Roth Individual Retirement Account (IRA) instead. A traditional IRA allows for tax-deductible contributions, meaning you get an upfront tax break. Then, you pay ordinary income tax on that money when you withdraw it in retirement.
Roth IRAs aren’t tax-deductible, since you fund them with after-tax dollars. The upside of that, however, is that qualified withdrawals in retirement are 100% tax-free.
A taxable brokerage account is another way to invest, without being subject to annual contribution limits the way you would with a 401(k) or IRA. The difference is that you’ll pay capital gains tax on your investment growth.
Paying attention to asset location can help with maximizing tax efficiency across different investment accounts. For example, exchange-traded funds can sometimes be more tax-efficient than other types of mutual funds because they have lower turnover. That means the assets in the fund aren’t bought or sold as frequently, so there are fewer taxable events.
Keeping ETFs in a taxable account while putting less tax-efficient investments into a tax-advantaged account, such as a 401(k) or IRA, could help with doubling your money if it means reducing the taxes you pay on investment gains.
The Takeaway
Learning how to double your money can mean taking a slow route or a quicker one, but it all comes down to how much risk you’re comfortable with and how much time you have to invest. One of the keys to growing your investments is being consistent and that’s where automated investing can help.
There are numerous strategies and tactics that you can try to leverage to your advantage. But ultimately, whether you’re able to double your money will likely come down to how much you’re willing to risk, how much time you have on your side, and probably a little bit of luck.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Photo credit: iStock/South_agency
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
SOIN0623020