4 Simple Ways Investing Can Double Your Money
To be successful with investing doesn’t require perfection; in fact, getting the basics right and knowing a few key details goes a tremendously long way. Perhaps the better news is that there are a number of ways to supercharge your investments that require very little technical knowledge of finance. Plenty of ordinary people are able to double their money by making a few simple and practical choices. Below, you’ll find four ways investing can double your money with only minimal effort.
1. The stoic power of time
The primary concept behind investment growth is compounding: Your portfolio will earn returns more and more rapidly if you periodically add to it and leave it alone. Put another way, as your investments grow, they will continue to earn more simply because they have grown. The sooner you start investing, the sooner compound interest will take hold.
It’s also advisable to reinvest dividends along the way. If the stock market happens to be down when a dividend is paid, you’ll be adding shares at a discount. As a result of reinvesting dividends, you’ll own more shares and be paid a larger dividend in the next period. This process repeats then continues on, generating ever-larger dividends and amplifying your portfolio balance.
2. Get your employer match
Talk about literally doubling your money: If you invest in your employer-sponsored plan (like a 401(k)) up to a specified amount, many employers will offer a matching contribution. Often, the match amount is in a range of 3% to 6% of your salary, and is the definition of a 100% return: If you earn $100,000 annually and contribute 5% of your salary to your 401(k), a company that matches up to 5% will deposit $5,000 in addition to your contribution. Given that this is essentially “free money,” there’s really no reason to miss out.
This is why it’s especially important to read your employer’s retirement plan document at least once to know the rules around matching and how best to take advantage of them.
3. Manage your taxes
With the threat of possible tax increases on the horizon, knowing how to limit taxes through investing is an ever-more important part of growing your net worth. Among the many options you have:
- Contributing the annual maximums to your Roth IRA and tax-deferred retirement account(s)
- Using your Health Savings Account (HSA) as a retirement account, if you have access to one
- Holding investments for as long as you can
- Avoiding day-trading and other short-term speculation
- Ensuring investments are held in their “tax-optimized” spot (i.e., stocks in taxable accounts, bonds in tax-deferred accounts)
You don’t need to be a tax expert to do any of these, but you’ll reap the benefits every spring if you do as many as you can on a consistent basis.
4. Refuse to pay high fees
If you choose to hire a full-time advisor, the language around fees can sometimes be confusing. This is especially true when a 1% to 2% annual fee doesn’t sound like a whole lot and terms like “management fee” and “advisory fee” sound extremely official. The fact is, fees are analogous to “guaranteed negative returns.” You should be extremely careful before agreeing to pay them unless you’re entirely clear on the benefits you’ll receive.
The reality is that simply not paying these fees and choosing a passive, long-term investment portfolio that requires little ongoing maintenance is a very easy way to double your money. High, unnecessary fees can, at their worst, have the effect of adding years onto your working life, so by avoiding them entirely, you’re allowing your investments to grow unencumbered.
The sooner the better
The best and most effective way to double your money is to start investing today. The magic of compound interest is amplified over long time periods, so the sooner you start investing, the better a result you’ll have. Take care to get the foundations right and learn a few important details, and you’ll be well on your way to a sizable portfolio.
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