Doubling your money is a realistic goal, here’s how to do it

It has less to do with your job title, more to do with what you do with your money

Doubling your wealth has evidently proven to have less to do with your job title and more to do with what you do with the money you have. However, a question that often resurfaces is whether investing is the only way to double your money and if it is, isn’t investing putting your hardearned income at significant risk of losing it?

While doubling your money is a realistic goal that most salary-earners and businessmen always aim for, and while there are many ways to get there, these methods don’t often increase your wealth or purchasing power even a little bit. Investing to double your money can be done safely over several years, or quickly, although there’s more of a risk of losing most or all of your money for those that are impatient.

While many agree that a better strategy is to put your cash in the stock market — if you are planning on doing that, you can rely on simple concepts to double its actual, spendable value. Whatever be the means you opt for, it all depends largely on your appetite for risk and your timeline for investing.

Time-tested way

It’s not that hard to double your money, if you have enough time. Even with a small investment growth rate, you can double your money over many years. When it comes to stocks, even one growing at 4 per cent annually will more than double over 20 years. But many seek quicker means to double their money.

When it comes to the traditional way of doubling your money, it’s time-tested to double your money over a reasonable amount of time is to invest in a solid, non-speculative portfolio that’s diversified between blue-chip stocks (of large companies) and good-grade (as rated by credit agencies) bonds.

It won’t double in a year, but it should, eventually, given the rule of 72. Considering that large, blue-chip stocks have returned roughly 10 per cent annually over the last 100 years and investment-worthy bonds have returned roughly 4 per cent over the same period, a portfolio divided evenly between the two should return about 8 per cent a year. Dividing 72 by that expected return rate indicates that this portfolio should double every nine years. That’s not too shabby when you consider that it will quadruple after 18 years.

The time it takes to double your money in the stock market is a function of your portfolio’s average annual growth rate. If you know the growth rate, you can approximate your doubling time by dividing that rate into 72. The answer is your estimated doubling time in years.

Useful timeline

Compare this to money invested in an index fund, which you could reasonably expect to grow at about 7 per cent ayear. Now you’re doubling your money in less than 11 years — a far more useful timeline.

Note the doubling time unfolds from the investment’s future growth rate, which will be a guess on your part. The guess is an educated one when you’re basing it on historic market averages. However, your doubling time estimates will be far less reliable if you’re assuming an investment will grow at 10 per cent or 15 per cent annually.

You might see 15 per cent growth one year and 4 per cent growth the next, for example. It’s not a single year of growth that matters; it’s the average over time.