How to Double Your Money

The phrase “double your money” has taken a bad rap in recent months, and for good reason. But does this mean we’re stuck with earning returns lower than the average inflation rate of 6%? At 6%, it will take 12 years to double your money. If that sounds like a bummer, consider these steps for your money to double in five, six, seven, or whatever years.

Step 1: Figure out in how many years you want to double your money

Just to keep up with a historical 6% average annual inflation, you need to double your money every 12 years. That means you need to do better than that if you want to beat inflation. Maybe you want your money to double in seven years, or five. Or, if you’re very aggressive, you might want to double it in a couple of years. Is that possible? Sure, it’s even possible for your money to double in a matter of months or weeks even.

Step 2: Assess if the corresponding average rate of return is reasonable

Let’s say you want your money to double in six years. Use the “Rule of 72” to find out what the compounded average rate of return would be for your money to double in six years. That would be 12% per annum. Is that reasonable for you? What if you want it to double in two years? You need to generate a 36% annual return. What about in six months? That’s 120%. The degree of reasonableness depends on the types of asset class that could generate those returns and your appetite for risk.

Step 3: Look for asset classes that can generate that rate of return

Match your expected rate of return with the asset classes that have historically generated those returns. Let’s start with 6% if you just want to keep up with inflation. Think money market instruments such as T-bills, time deposits, and money market funds. Take it up a notch to 7% to 9% and consider corporate bonds, T-bonds, bond funds, and long-term time deposits. From 10% to 15%, you’re looking at stocks, stock funds, and some long-term time deposits. Consider also real estate and commodities. Those asset classes – stocks, real estate, and commodities – can potentially earn fantastic returns over short periods of time but can hardly be sustained.

Step 4: Determine if the risk is worth it

The point is that doubling your money in a short period of time is possible in certain markets. But with higher returns come higher risks. So what you really should ask yourself is if you’re willing to take those risks and prepared to lose money. If it’s money you can afford to lose, then you can take bigger risks. Otherwise, it’s foolish to invest your money in high-risk instruments. At the other extreme, it’s also foolish to be so conservative that you’re losing the value of your money due to inflation.

Step 5: Consider other ways you can double your money

There are other ways to double your money other than the aforementioned asset classes. You can double your money by building a lucrative business or corporate career. Using leverage, i.e. borrowing money, to invest can spike your potential returns since you’re using other people’s money. Some people take to gambling, which increases both risk and potential loss. In all these cases, there are also no guarantees. So as they say in Vegas, the safest way to double your money is to fold over once and put it in your pocket.

No related events.

Category : Blog