Doubling your money is a badge of honor, often used as bragging rights at parties and around the Thanksgiving dinner table. Spurious promises to double one’s money can also be made by overzealous advisors or worse, scamsters and fraudsters. Perhaps the urge to double one’s money comes from deep in our investor psychology—the risk-taking part of us that loves the quick buck. When it comes to efforts do so, however, two critical elements that are inter-related need to be considered: Time and Risk. This refers both to your (investing) time horizon and risk tolerance, as well as to the attributes to the investment itself, i.e., the time it might take for the investment to double your money, which in turn is a function of the riskiness of the investment.

Time Horizon and Risk Tolerance

Your investing time horizon is an extremely important determinant of the amount of investment risk you can handle, and is generally dependent on your age and investment objectives. For example, a young professional likely has a long investment horizon, so she can take on a significant amount of risk because time is on her side when it comes to bouncing back from any losses. But what if she is saving to buy a house within the next year? In that case, her risk tolerance will be low, since she cannot afford to lose much capital in the event of a sudden market correction, as this would jeopardize her primary investment objective of buying a house.

Likewise, conventional investing strategy suggests that people in or near retirement should have their funds deployed in “safe” investments like bonds and bank deposits, but in an era of extremely low interest rates, that strategy carries its own risk, mainly of the loss of purchasing power through inflation. As well, a retired individual in his 60s with a decent pension and no mortgage or other liabilities would probably have a reasonable amount of risk tolerance.

Let’s now turn to the “time and risk” attributes of an investment itself. An investment that has the potential to double your money in a year or two is undoubtedly more exciting than one that may do so in 20 years. The issue here is that an exciting, high growth investment will almost certainly be far more volatile than a staid, “Steady Eddy” type of investment. The higher the volatility of an investment, the riskier it is. This increased volatility or risk is the price that an investor pays for the allure of higher returns.

How long to double one’s money?

The Rule of 72 is a well-known shortcut for calculating how long it will take for an investment to double if its growth compounds annually. Just divide 72 by your expected annual rate of return. The result is the number of years it will take to double your money.

When dealing with low rates of return, the rule of 72 provides a fairly accurate estimate of doubling time. However, that estimate gets less precise at very high return rates, as can be seen in the chart below, which compares the estimates for “time to double” (in years) generated by the Rule of 72 and the actual number of years it would take for an investment to double in value.

Five Ways to Double Your Money

Doubling your money is actually a realistic goal that most investors can strive towards, and is not as daunting a prospect as it may seem initially for a new investor. There are a few caveats, however:

• Be very honest with yourself (and your Investment Advisor, if you have one) about your risk tolerance; finding out you don’t have the stomach for volatility when the market plunges 20% is the worst possible time to make this discovery, and may be very detrimental to your financial well-being.
• Don’t let the two emotions that drive most investors – greed and fear – have an adverse impact on your investment decisions.
• Be extremely wary about get-rich-quick schemes that promise you “guaranteed” sky-high results with minimal risk, because there’s no such thing. As there are probably many more investment scams out there than there are sure bets, be suspicious whenever you’re promised results that appear too good to be true. Whether it’s your broker, your brother-in-law, or a late-night infomercial, take the time to make sure that someone is not using you to double their money.

Broadly speaking, there are five ways to double your money. The method you choose depends largely on your appetite for risk and your timeline for investing. You may also consider adopting a mix of these strategies to achieve your goal of doubling your money.

1. The Classic Way—Earning It Slowly

Investors who have been around for a while will remember the classic Smith Barney commercial from the 1980s in which British actor John Houseman informs viewers in his unmistakable accent that “they make money the old fashioned way — they earn it.”

When it comes to the most traditional way of doubling your money, that commercial is not too far from the truth. The time-tested way to double your money over a reasonable amount of time is to invest in a solid, balanced portfolio that’s diversified between blue chip stocks and investment-grade bonds.

The S&P 500 index – the most widely followed index of blue-chip stocks – has returned about 9.8% annually (including dividends) from 1928 to 2020, while investment-grade corporate bonds have returned 7.0% annually over this 93-year period. Thus, a classic 60-40 portfolio (60% equities, 40% bonds) would have returned about 8.7% annually during this time. Based on the Rule of 72, such a portfolio should double in about 8.3 years, and quadruple in approximately 16.5 years.

Note, however, that a significant amount of volatility generally accompanies such sterling results. Investors should brace themselves for occasional sharp drawdowns, such as the 35% plunge in the S&P 500 within a six-week period in the first quarter of 2020, as the coronavirus pandemic erupted worldwide.

As well, very high returns compared to the historical norm may reduce the potential for future returns. For example, the S&P 500 recovered from its 2020 plunge in record time and powered its way to new record highs by year-end 2020. Although it returned a jaw-dropping total return of 100% from 2019 to 2021, such stellar returns may mean that future returns from the S&P 500 may be significantly lower.

What about Real Estate?

Real estate is another traditional way to build wealth, although it is a much less attractive proposition at times like the present when housing prices in North America have surged to record levels in many regions. The prospect of rising interest rates also reduces the appeal of real estate investment.

That said, during a real estate boom, the prospect of doubling one’s money proves irresistible to many investors, since the huge amount of leverage provided from mortgage financing can really juice up returns. For example, a 20% down payment on an investment property worth $500,000 would require an investor to plunk down $100,000 and get a mortgage for the balance $400,000. If the property appreciates 20% to $600,000 in the next few years, the investor now has equity worth $200,000 in it, which represents a doubling of the original $100,000 investment.

2. The Contrarian Way—Blood in the Streets

Even the most unadventurous investor knows that there comes a time when you must buy, not because everyone is getting in on a good thing but because everyone is getting out.

Just as great athletes go through slumps when many fans turn their backs, the stock prices of otherwise great companies occasionally go through slumps, which accelerate as fickle investors bail out. As Baron Rothschild supposedly once said, smart investors “buy when there is blood in the streets, even if the blood is their own.”

Nobody is arguing that you should buy garbage stocks. The point is that there are times when good investments become oversold, which presents a buying opportunity for investors who have done their homework.

Valuation metrics used to gauge whether a stock may be oversold include a company’s price-to-earnings ratio and book value. Both measures have well-established historical norms for both the broad markets and for specific industries. When companies slip well below these historical averages for superficial or systemic reasons, smart investors smell an opportunity to double their money.

Being contrarian means that one is going against the prevailing trend. It therefore requires a greater degree of risk tolerance and a substantial amount of due diligence and research. As such, a contrarian strategy is best left to very experienced investors, and is not recommended for a conservative or inexperienced investor.

3. The Safe Way

Just as the fast lane and the slow lane on the highway eventually will get you to the same place, there are quick and slow ways to double your money. If you prefer to play it safe, bonds can be a less hair-raising journey to the same destination.

Consider zero-coupon bonds, for example. For the uninitiated, zero-coupon bonds may sound intimidating. In reality, they’re simple to understand. Instead of purchasing a bond that rewards you with a regular interest payment, you buy a bond at a discount to its eventual value at maturity.

One hidden benefit is the absence of reinvestment risk. With standard coupon bonds, there are the challenges and risks of reinvesting the interest payments as they’re received. With zero-coupon bonds, there’s only one payoff, and it comes when the bond matures. On the flip side, zero-coupon bonds are very sensitive to changes in interest rates, and can lose value as interest rates rise; this is a risk factor to be considered by an investor who does not intend holding a zero-coupon bond to maturity.

Series EE Savings Bonds issued by the U.S. Treasury are another attractive option for conservative investors who do not mind waiting a couple of decades for the investment to double. Series EE Savings Bonds are low-risk savings products that are only available in electronic form on the TreasuryDirect platform. They pay interest until they reach 30 years or the investor cashes them in, whichever comes first. Although the current rate of interest is a paltry 0.10% for bonds issued between November 2021 and April 2022, they come with a guarantee that bonds sold now will double in value if held for 20 years. The minimum purchase amount is $25, while the maximum purchase per calendar year is $10,000. Savings bonds are exempt from State or local taxes, but interest earnings are subject to federal income tax.

4. The Speculative Way

While slow and steady might work for some investors, others find themselves falling asleep at the wheel. For folks with a high degree of risk tolerance and some investment capital that they can afford to lose, the fastest way to super-size the nest egg may be the use of aggressive strategies such as options, margin trading, penny stocks, and in recent years, cryptocurrencies. All can super-shrink a nest egg just as quickly.

Stock options, such as simple puts and calls, can be used to speculate on any company’s stock. For many investors, especially those who have their finger on the pulse of a specific industry, options can turbo-charge a portfolio’s performance.

Each stock option potentially represents 100 shares of stock. That means a company’s price might need to increase only a small percentage for an investor to hit one out of the park. Just be careful, and be sure to do your homework before trying it.

For those who don’t want to learn the ins and outs of options but do want to leverage their faith or doubts about a particular stock, there’s the option of buying on margin or selling a stock short. Both 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 raises their potential profits substantially. This method is not for the faint-hearted. A margin call can back you into a corner, and short-selling can generate infinite losses.

Lastly, extreme bargain hunting can turn pennies into dollars. You can roll the dice on one of the numerous former blue-chip companies that have sunk to less than a dollar. Or, you can sink some money into a company that looks like the next big thing. Penny stocks can double your money in a single trading day. Just keep in mind that the low prices of these stocks reflect the sentiment of most investors.

As Bitcoin has grown in popularity and become more mainstream, other cryptocurrencies have also emerged in recent years as one of the favored ways for speculators to make a quick buck. While Bitcoin surged 60% in 2021, its performance pales in comparison to as many as 10 other cryptocurrencies (with a market cap of at least $10 billion) that soared 400% or more in 2021, such as Ethereum, Cardano, Shiba Inu, Dogecoin, Solana, and Terra (Solana and Terra gained more than 9,000% in 2021). Unfortunately, the cryptocurrency arena is a fertile hunting ground for scamsters, and there are numerous instances of crypto investors losing a great deal of money through fraud. Would-be cryptocurrency investors should therefore take utmost care when putting their hard-earned money into any cryptocurrency.

5. The Best Way

While it’s not nearly as fun as watching your favorite stock on the evening news, the undisputed heavyweight champ is an employer’s matching contribution in a 401(k) or another employer-sponsored retirement plan. It’s not sexy and it won’t wow the neighbors, but getting an automatic $0.50 for every dollar you save is tough to beat.

Making it even better is the fact that the money going into your plan comes right off the top of what your employer reports to the IRS. For most Americans, that means that each dollar invested costs them only $0.65 to $0.75 cents.

If you don’t have access to a 401(k) plan, you still can invest in a traditional IRA or a Roth IRA. You won’t get a company match, but the tax benefit alone is substantial. A traditional IRA has the same immediate tax benefit as a 401(k). A Roth IRA is taxed in the year the money is invested, but when it’s withdrawn at retirement no taxes are due on the principal or the profits.

Either is a good deal for the taxpayer. But if you’re young, think about that Roth IRA. Zero taxes on your capital gains? That’s an easy way to get a higher effective return. If your current income is low, the government will even effectively match some portion of your retirement savings. The Retirement Savings Contributions Credit reduces your tax bill by 10% to 50% of your contribution.