Every time you double your money, you have twice as much of it available for your future. If you start investing early enough and aggressively enough, that early money may very well double for you five or six times throughout your career. That’s enough to turn a single $1,000 investment into $32,000 or even $64,000Â over time, which can be an amazing start on your nest egg.
With that in mind, if you’re looking to double your money in the market, there are some crazy ways to try to do it. Fortunately, there are also some more sure-fire approaches that might take more time but have a higher likelihood of success. These four simple ways investing can double your money are ones you may be able to leverage on your path to building a comfortable nest egg.
1. Use your boss and Uncle Sam for help
When you invest in your traditional 401(k), you get an immediate tax deduction for your contribution. That helps you sock aside more in the plan than it costs you in spending money, by however much your marginal tax rate is. On top of that deduction, if your employer offers a match for your contribution, the combination can get you close to — or perhaps better than — doubling your money just by investing it in that plan.
Indeed, this is one of the most sure-fire ways to double your money quickly, as all it relies on are the standard mechanics of a traditional 401(k) with an employer match. The downside, however, is that that particular bonus magic only happens with your initial investment. Any future doublings of that invested cash will rely on earning compounded returns over time.
2. Double-invest your tax refund
In most cases, a tax refund represents Uncle Sam handing you back money you had overpaid throughout the previous year. When you get that tax refund, you can certainly invest it — but you might even be able to invest twice that amount.
As long as tax rates are stable year over year, you can adjust your withholdings in the new year to lower them — and the money you’re over-withholding. The excess money you’re no longer having withheld from your paycheck can also be invested, more or less allowing you to invest your tax refund twice.
After all, the IRS doesn’t expect you to get your taxes perfect in advance of the filing deadline, just close enough. As long as you get within a safe harbor limit, you can true up the total you owe by the filing deadline and avoid penalties and interest. That should allow you to invest the excess you would have otherwise had withheld, allowing you to take advantage of the opportunity.
3. Reinvest your dividends
Reinvesting your dividends can make a huge difference in the total return you can expect from investing. Assume the market delivers a total return around 8% per year — 6% from growth and 2% from dividends. If you invest $10,000, siphoning off the dividends and letting the principal grow, in 30 years, that $10,000 will turn into around $57,435Â . If instead, you reinvest your dividends, that same initial investment will grow to over $100,000 over the same time periodÂ .
That’s the magic of compounding — and as you can see, it can rapidly speed up the time it takes for your money to double. Using the rule of 72 as a shortcut for how big a difference it can make, at 6% per year, your money will double in about 12 yearsÂ . At 8%, it will double in about nine yearsÂ . With three years knocked off your doubling time, your total nest egg can simply grow that much faster.
4. Just give the market time
Even without the benefit of compounding your dividends, the growth of the companies in the market overall gives your money the opportunity to double over time. One of the easiest and most straightforward ways to take advantage of that is to simply buy into a broad-market index fund, with a little bit of every paycheck. That way, you don’t have to pick the winners from the losers but instead can just let growth over time do its work.
It may not be the most glamorous way to invest, but it certainly has a proven track record of strong results. Unless you’ve got the time, temperament, and energy to invest in researching the stocks you’d like to own, dollar-cost averaging into an index fund and letting the market work its magic is a great way to invest. Start early enough, and your money can very well double several times throughout your career. Keep at it long enough, and it could turn into enough to cover a comfortable retirement.
Get started now
No matter how you try to your money by investing, the simple truth is that the longer you give the market to work, the easier it is for your money to have the chance of doubling. So get started now, and give that cash a better chance to double more than once along your path to when it becomes time to spend the nest egg you’ve built.