Double your money on an investment? The expression represents a holy grail for many. The challenge seems particularly daunting today when most "safe" investments report historically low returns. Bankrate, which tracks US certificates of deposit, is currently posting a 2.0% yield over five years on a $ 25,000 deposit.
According to the author of the investment Ken Clark, doubling your money is still a realistic goal, but also a way to make people act impulsively. Clark, writing in Investopedia, has presented five realistic strategies that an investor can follow to double his money.
The classical approach
The classic approach is to gain slowly gains. An example is to invest in a secure and non-speculative portfolio, including quality bonds and first class stocks. This approach works on the basis of the "rule of 72", referencing the calculation of the time it takes to double the value according to the compound interest. Dividing the expected annual rate of return by 72 gives the number of years needed to double the value.
Since blue-chip stocks have gained about 10% over the last 100 years while quality bonds have gained about 6%, a portfolio divided equally between them will yield about 8%. This means that the value will quadruple in 18 years.
According to Stansberry Research, Warren Buffet has turned $ 105,000 into more than $ 50 billion in compounds. He researched the best companies in which to invest and then waited until their stock market value dropped due to a scandal or a collapse of the market, then he bought.
"Blood on the Streets & # 39;
The approach of "blood on the streets" refers to cases where an investor feels that he has to buy because everyone sells. This is also known as the "contrarian" approach. Stock prices of normally robust companies suffer from collapses on the occasion when fickle investors want to run away.
Sir John Templeton and Baron Rothschild said that smart investors buy when there is "blood on the street". They referred to the fact that good investments occur, offering investors an opportunity to buy. do.
The book value and the price-earnings ratio offer barometers to determine when a security is oversold. These measures set good historical standards in specific sectors and in large markets. When companies fall below these historical averages for systemic or superficial reasons, investors have the opportunity to double their money .
The Security Approach
Investors who are wary of risk find bonds a safe approach to growth. Zero coupon bonds such as US savings bonds can achieve this goal. Such obligations are easy to understand. Rather than buying a bond paying a regular interest, buy one at a price lower than its final amount to maturity.
Rather than paying $ 1,000 for a $ 1,000 bond paying 5% per year, buy it for $ 500. As the maturity approaches, its value rises until the holder is fully repaid the par value.
There is no risk of reinvestment in this approach. Standard coupon bonds regularly need to reinvest interest payments as and when they are received. Zero coupon bonds do not involve the challenge of investing payments at lower rates or risking lower interest rates.
The Speculative Approach
For investors looking for excitement and appetite for larger risks, options, margins and penny stocks offer some of the fastest ways to double the value.
The wagers and calls allow to speculate on the stock of any business. Investors who pay attention to specific sectors are able to improve the performance of their portfolio by using these stock options. Each stock option can represent 100 stocks, which means that a stock price should only increase by a small percentage to generate a large gain. This approach requires research because options can pick up wealth as fast as they can.
Those who want to take advantage of their faith in a title but who do not have the patience to search for options can sell a short title or buy on margin. These techniques involve borrowing money from a brokerage and buying more shares to increase potential profits. This technique takes courage since margin calls can pinch the money available while short selling can result in infinite losses.
Bargaining is another technique that can stimulate returns. Whether we bet on former blue chip companies that sell less than a dollar or invest thousands of dollars in the next "big deal", penny shares can double in value in a day. The price of a company's shares, no matter the amount, reflects the value that other investors do not see beyond.
The best approach of all
The best way to double your investment stack is to take advantage of the employer's equivalent contribution to your pension plan. Receiving 50 cents on every dollar deposited is a sure way to create wealth.
Another important consideration is the fact that money entering a 401 (k) is tax deductible. This means that every dollar invested costs the investor only 65 to 75 cents. For every 75 cents, investors receive $ 1.50 or more in their retirement fund.
For those who do not have a 401 (k) employer-sponsored plan and who earn less than a certain amount, the federal government matches a portion of the contributions to the retirement accounts . The credit for qualifying savings contributions reduces the contribution tax from 10% to 50%.
Do Your Homework
Doubling money is a realistic goal, but investors must be frugal. There are more scams promising unrealistic returns than safe bets.
This article gives an overview of a very serious topic for most people and deserves an important consideration . In a free market society, the individual bears responsibility for his own wealth creation. Those who are serious need to devote time to investment options in research.
Since most people do not have the time to focus on in-depth investment research, financial advisors are important. Finding the right advisor, however, requires research in itself.
Kiplinger.com, a long-time investor research firm, recently published an article on the selection of an investment advisor. Here are a few tips.
1) Learn the financial professional vocabulary. Know the difference between a registered SEC investment advisor, a registered representative and an insurance agent. Know if the compensation of the adviser is paying or based on commissions.
2) Be aware of all costs associated with investments. The fee-based consulting arrangement is a preferred method as it encourages ongoing planning. But it is important to be aware of the investments held in a fee account, as these are fees that add to the fees paid to the advisor.
3) Be aware of the revenue-sharing arrangements of a consulting firm with mutual funds and annuity products. These arrangements can blur the advice of an advisor. Large financial corporations often have income sharing documents that reveal their conflicts of interest.
4) Be aware of the affiliations of a counselor. Some seemingly independent businesses are in fact franchises of big companies and therefore have the same conflicts of interest as big companies.
The relationship that an investor establishes with an advisor must be based on trust to be mutually beneficial. The client in this relationship should feel comfortable asking the counselor any questions he or she wishes.
Even though it is not unreasonable that the counselor feels frustrated to work with a client, a good counselor wants the client to be confident in his investment decisions.