3 Proven Ways to Double Your Money | Personal Finance

We’d all love to double our money. Even billionaires, presumably, would love to double their money. It might seem like a hard thing to do, but there are several ways to go about it. Here are a few to consider.

Let’s start with an easy way to double your money — as long as you have a 401(k) plan available to you at work. If you do, there’s a very good chance that your employer offers matching dollars, according to a particular formula. An example would be matching 100{1b90e59fe8a6c14b55fbbae1d9373c165823754d058ebf80beecafc6dee5063a} of worker contributions up to 4{1b90e59fe8a6c14b55fbbae1d9373c165823754d058ebf80beecafc6dee5063a} of salary. So if you contribute 4{1b90e59fe8a6c14b55fbbae1d9373c165823754d058ebf80beecafc6dee5063a} (let’s say that you earn $100,000 and that amounts to $4,000), your employer will kick in another $4,000. That’s free money, and it’s also pretty much guaranteed.

There are other formulas, some more generous, some less so. A common one is matching 50{1b90e59fe8a6c14b55fbbae1d9373c165823754d058ebf80beecafc6dee5063a} of contributions up to 6{1b90e59fe8a6c14b55fbbae1d9373c165823754d058ebf80beecafc6dee5063a} of salary. So if you contribute 6{1b90e59fe8a6c14b55fbbae1d9373c165823754d058ebf80beecafc6dee5063a}, you’ll get 3{1b90e59fe8a6c14b55fbbae1d9373c165823754d058ebf80beecafc6dee5063a} chipped in by your employer. Aim to never leave such money on the table. Note, too, that contribution limits for 401(k) accounts are very generous. For 2020, you can contribute up to $20,500, and if you’re 50 or older, you can add another $6,500 to that.

Another strategy is simply to invest more effectively. Many of us, myself included, are guilty of just leaving some money invested somewhere in some account. Maybe you chose a few mutual funds for your 401(k) account’s contributions, or for your brokerage account. If you haven’t kept up with them and assessed how they’ve been performing for you, you might be in for a sad surprise.

Similarly, if you’ve just been stockpiling dollars in a bank account (which I did for several years in my youth), earning very little, they could be working harder for you invested in more effective places.

Do keep short-term money — money you expect to need within five (or 10, to be more conservative) years — out of stocks and in accessible places, such as money market accounts or certificates of deposit (CDs). But park your long-term dollars where they’re likely to grow best for you. For most of us, that’s the stock market.

You might invest in stocks simply, via a low-fee, broad-market index fund, or you might study companies and pick some individual stocks in which to invest. (Or do both!) The Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF (NYSEMKT: SPY) are solid index funds to consider.

For individual stocks, be sure to read up on how to research stocks, as it’s not enough to just invest in great companies. You also want to invest when their shares are undervalued — or at least not too overvalued.

Consider the following kinds of stocks:

• Dividend-paying stocks — which tend to be relatively established and can generate fairly reliable income
• Growth stocks — which are tied to companies growing at an above-average clip and have much growth potential (though they can be especially volatile, too)
• Undervalued stocks — which are trading for less than their intrinsic value and thereby offer a margin of safety

If you’re going to invest in individual stocks, focusing on just a few can be risky. So our Motley Fool investing philosophy recommends buying at least 25 stocks and planning to hold them for at least five years. That can increase your likelihood of ending up with some big winners, as you’ll be giving the stocks time to grow and perform.

Finally, prepare to be patient, and to let the power of compounding do its awesome work. Check out the table below, which shows how various sums invested regularly can grow over time:

Data source: Calculations by author.

You can see that in the early years, the portfolio value is growing — but in the later years, it’s growing by a lot. And you don’t necessarily have to do much work to achieve such results, beyond sticking with the program and investing regularly for many years. Your money just doubles — and, if your investing timeframe is long enough, doubles again and again.

There are no guaranteed returns in the stock market, but over many decades it has averaged annual growth of around 10{1b90e59fe8a6c14b55fbbae1d9373c165823754d058ebf80beecafc6dee5063a}. A broad-market index fund will perform roughly as well as that, and so it can clearly build wealth effectively. The table above assumes an 8{1b90e59fe8a6c14b55fbbae1d9373c165823754d058ebf80beecafc6dee5063a} average growth rate, to be a bit more conservative.

These are some solid approaches to building long-term wealth and having your money double. See which strategies mentioned here you might want to act on.

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Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool owns and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.