There’s something that intrigues most investors by the idea of doubling one’s money. Doubling your money is a realistic goal that investors must always be moving towards, as well as something that can lure people into impulsive mistakes regarding investing. Here we shall look at the right and the wrong ways to invest for huge returns.
THE SUPERIOR WAY- EARN IT SLOWLY
To double your money, the most tested way over a reasonable time is to invest your money in a solid, non-speculative portfolio that diversifies between investment grade bonds and blue chip stocks. The portfolio won’t get doubled in a year, but will surely do eventually.
The old rule of 72 helps you calculate the time it would take for your investment to get doubled if its growth compound itself. According to rule 72 you got to divide your expected annual rate of return into 72 which tells you how many years would it take to double your money.
Investment grade bonds have returned over 6% and blue chip stocks have returned over 10% over the last 100 years, a portfolio which is divided between the two should return about 8%.
THE OPPOSING WAY- BLOOD IN THE STREETS
Every investor knows that there comes a time when you have to buy- not because everyone is getting in a good thing, but because everyone is getting out. Just like the great athletes go through flumps when many fans turn their backs, likely the stock prices of great companies occasionally go through flumps because volatile investors head for the hills.
Smart investors “buy when there is blood in the streets, even if the blood is of their own”- Baron Rothschild once said. That’s of course the famous financiers dint mean to say that you buy garbage. It meant that there are times when good investments get oversold, which puts-forth a buying opportunity to brave investors who have done their homework.
Price to earnings ratio and the book value of a company- these measures are fairly well established historic norms for both the broad market and specific industries. When companies slip below the historical averages for systematic or superficial reasons, the smart investors smell an opportunity to double their money.
THE SAFE WAY
So yes, there are both slow and quick ways to double your money. For the investors who are afraid of wrapping their portfolio around a telephone pole, bonds may provide a significantly less precarious journey to the same destination. But, investors who are taking fewer risks by the usage of bonds do not have to give up their dreams on being proud of doubling their money. In fact zero-coupon bonds could keep you in “double your money” discussion.
The zero coupon bonds might sound intimidating while in reality they are simple to understand. You buy a bond at a discount to its eventual maturity amount instead of purchasing bond that rewards you a regular interest payment. For example, instead of paying $2000 for a $2000 bond that pays 5% per year, an investor might buy that same $2000 for $1000. As it moves closer and closer to maturity, its value slowly climbs until the bondholder is eventually repaid the face amount.
The hidden benefit many coupon bondholders love is that there ia an absence of reinvestment risk.
THE SPECULATIVE WAY
Investors crave more excitement in their portfolios and have the willing to take bigger risks to ear bigger payoffs. For them, who invest money for a specific purpose the fastest way to supersize is by the use of options, penny stocks or margins.
The stock options- puts and calls can be used to speculate on any of the company stocks. But be careful that options can take away the wealth just as quickly as they could create it.
There in an option of buying on margin or selling a stock short for those who don’t want to learn the ins and outs of options but also want to leverage their faith about a certain stock. Both of these methods allow investors to essentially borrow money from a brokerage house to buy or sell more shares than they actually have, which in turn can raise their potential profits substantially.
THE BOTTOM LINE
There’s an old saying that if “something is too good to be true, then it probably is.”
That’s sage advice when it comes to doubling your money, considering that there are probably far more investment scams out there than sure things.
While there are certainly other ways to approach doubling your money than the ones mentioned so far, always be suspicious when you’re promised results.
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