Growing your wealth usually takes time. There isn't one magic way to make it happen, but strategic investing tends to play a key role. The idea is to make your money work harder for you over the long term. If you're wondering how to double your money, the following steps could help you get there. Just remember that slow and steady wins the race. That means being patient and sticking to your investment plan over the long haul.
1. Take Advantage of 401(k) Employer Matches
A 401(k) is an employer-sponsored retirement account that has some notable tax benefits. Your contributions will reduce your taxable income during your working years, and you won't owe taxes until you withdraw funds in retirement. As an employee benefit, some companies will match some or all of your contributions up to a certain amount—and that's essentially free money. Taking advantage of employer matches is perhaps the safest way to double your money.
Let's say your employer will match 100% of your contributions up to 3.5% of your $70,000 pretax salary. To maximize your benefit, you'd need to contribute $2,450 each year to your 401(k). Your employer would then kick in the same amount, bringing the total amount saved to $4,900. You could also contribute more on top of that, as long as you stay within the annual contribution limit. This all translates to more money that can benefit from the power of compound interest. (More on this shortly.)
2. Invest in Index Funds
Individual stock picking can be a risky game. Trying to decide which ones to buy and which ones to sell, and when, isn't an exact science. That's why it's seen as a more volatile investment strategy than others. Index funds are considered a safer way to invest in stocks. They're made up of a basket of stocks that are linked to a broad market benchmark like the S&P 500, Nasdaq Composite or Dow Jones Industrial Average. An index fund aims to match the performance of its corresponding stock index. Meanwhile, its structure provides immediate diversification.
Index funds can lead to stable, long-term gains. Over the past decade, the S&P 500 has seen an average annualized return of more than 10%, according to the S&P Dow Jones Indices. Returns are never guaranteed, but index funds tend to provide stability and predictably over the long term. Just know that growth usually happens at a slower rate when compared with more aggressive investments. In other words, patience is often required, so this is not a strategy to use and expect to double your money quickly.
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3. Consider Some High-Risk Investments
Sprinkling some high-return assets into your portfolio could help double your money. These types of investments carry more risk, which is why diversification is so important. Diversifying your investments involves holding a healthy mix of investments across different asset classes, industries, geographic locations and risk levels. If one area of your portfolio declines in value, stability in other areas could help offset those losses.
When compared with low-risk assets, high-risk investments are associated with better potential returns. While significant losses are possible, so are big gains. Riskier investments can include:
- Individual stocks
- Cryptocurrency
- Real estate
- Venture capital
- Angel investing
- Initial public offerings (IPOs)
- Hedge funds
- Peer-to-peer lending
It's wise to be strategic about how much money you put into these types of investments. A financial advisor can provide more personalized guidance.
4. Use Cash Windfalls to Double Your Money
Cash windfalls come in all shapes and sizes. Whether it's a work bonus, tax refund or inheritance, large waves of income can help double your money. You might choose to put a portion toward a meaningful financial goal—such as buying a home, building your emergency fund or paying down high-interest debt—then invest the rest directly into a 401(k), individual retirement account or regular brokerage account.
Investment accounts allow you to earn interest on your principal balance and any interest you've previously earned. Thanks to compound interest, the more (and longer) you're invested, the more your money can grow.
5. Rebalance Your Investment Portfolio as Needed
Your asset allocation refers to the types of investments you have in your portfolio. The right allocation for you will depend on your risk tolerance, age and financial goals. It's common for people to gradually scale back on high-risk investments as they get closer to retirement and have less time to recover from market dips. Younger investors, on the other hand, may opt for a riskier asset allocation.
Regular market activity can change the value of your investments over time. A portfolio that once held 60% stocks and 40% bonds, for example, might drift higher or lower in one direction. Rebalancing your portfolio can restore your desired asset allocation—and hopefully get you closer to doubling your money. Most financial experts recommend rebalancing at least once a year. You can also recalibrate whenever your allocation feels off. Just be careful to not rebalance too hastily in response to temporarily rocky market conditions, as you could end up losing out in the long run.
The Bottom Line
There are lots of ways to double your money. It usually involves strategic investing and maintaining a diversified portfolio as you move through different phases of your life. You'll also want to keep other parts of your financial health going strong, which includes your credit. You can check your credit score and credit report for free with Experian anytime you want. Use what you learn when you check your credit to help you make improvements—even small ones—that will pay off to your long-term financial health.