(Sam Swenson, CFA, CPA)
Over the past several years, a number of different ideas have been advertised to help you double your money, and fast. Among them: cryptocurrencies, NFTs, and once-lesser-known stocks like AMC Entertainment and GameStopto name a few.
Since the markets for many of these have fallen dramatically over the past several months, it’s a good time to revisit the time-tested ways that people have doubled their money. It may take a bit of patience, but there are a few key things you can do to ensure your money doubles over time.
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1. Get your company’s 401 (k) match
In the most literal sense, receiving your company match is one of the easiest ways to double your money. Most employer 401 (k) plans offer some level of matching, which means you’ll receive a 100% return on contributions to the plan up to a specified limit. The limit usually ranges from 2% to 6%.
Say you earn $ 100,000 and receive a 5% match from your employer for all contributions to your 401 (k) plan. In other words, if you contribute $ 5,000 to your 401 (k) plan in any given calendar year, you’ll receive $ 5,000 from your employer as a matching contribution. A 100% return!
While the employer match won’t make you a millionaire overnight, it will get you into the habit of regularly funding your retirement account and easily doubling your efforts.
2. Continue investing when the market is down
With the Vanguard S&P 500 Fund (NYSEMKT: VOO) down in the double-digits to start 2022, many people (somewhat understandably) want to run away from investing entirely. In fact, this is the time to do just the opposite: It’s time to load up and lower your overall cost basis in the securities you already own. Those who stay the course and allow their retirement auto-deposits to continue are likely to be those who really come out ahead in the long run.
Investing when the market is down also has a magnified effect if you reinvest your dividends and capital gains (this can usually be automated within your account settings, depending on your broker). In other words, when dividends and capital gains are paid out, you’ll automatically buy more shares of the same investment at lower prices. When the market finally recovers, you’ll end up with more than you started with.
3. Focus on the broad markets
It’s a more prudent strategy to simply choose the broad index – inclusive of all market segments – and to continue investing despite ugly numbers across the headlines. This boils down to diversificationthe concept of spreading your money around to different economic sectors.
Conversely, playing the “hot stocks” is likely to have gotten you in hot water – especially if you started investing recently. Over the past two years, it was incredibly easy to get caught up in tech-stock mania, especially when fund managers like Cathie Wood were earning double and triple-digit returns by investing in emerging technologies.
Year to date, most of Wood’s ARK Invest funds are down over 50% with no signs of the declines letting up.
As the below chart shows, losses for tech-heavy funds like the ARK Innovation Fund (NYSEMKT: ARKK) have been particularly intense on the way down:
A $ 10,000 investment in the ARK Innovation Fund at the beginning of the year would now be worth less than $ 5,000, while a broadly diversified index fund, like the Vanguard S&P 500 Fund, is still worth over $ 8,600. Proper diversification can help limit losses, even when it feels like the world is crumbling.
This is all to say that by sticking with the broad markets, you’re much more likely to achieve stable, long-term results that offer an attractive risk-reward ratio. By committing to such a strategy, you’ll harness the power of compound interest and see your money double (or triple!) In a smoother and more dependable fashion.
Focus on controllable variables
Of course, you can’t control what the market does tomorrow, next week, or next year. But you can control your own behavior. Keep the focus on the tried-and-true ways of doubling your money, and time will take care of the rest. By qualifying for your company match, continuing to invest when the market is down, and diversifying adequately, you’ll see your portfolio balance double in due time.
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