Watching your money grow is a wonderful thing. Would you like to double your money? If you invest in a CD or a savings account, the interest rates are likely to be low and it will take a long time to double your money. But there are other ways to grow your money faster.
But before we get into the strategies to grow money, you need to understand a simple formula called the Rule of 72.
Understand the rule of 72
The Rule of 7 is a quick formula that’s used to estimate the number of years it takes to double your money at a given annual rate of return. You can also compute the annual return you will need to double your money given the number of years.
The Rule of 72 applies compound interest, not simple interest. Compound interest is calculated based on the initial principal and the accumulated interest of the previous period.
Example 1
Annual return = 6%
Time to double your money = 72/6 = 12 years
Example 2
Let’s say that you would like to double your money in 6 years. What’s the annual return you will need?
Number of years to double the money = 12
Return required to double the money = 72/6 = 12%
Best way to double your money
Invest in real estate
Real estate has produced a lot of millionaires. It doesn’t have the volatility of the stock market and tends to yield similar levels of return over the long term.
You can buy a rental property with a 20% downpayment. You can then pay most or all of the mortgage every month with the rent you collect from the tenants.
Real estate tends to appreciate over the long term. So you enjoy the capital gains while getting the tenants to pay for the house through their lease payment.
With real estate, instead of renting the house, you can choose to buy run-down houses, repair them, and flip them. While there is some risk involved in this approach, you can also make quick rewards if it pays off.
Another option is to invest in crowdfunding platforms. These platforms allow you to invest money in real estate with others. Unlike traditional real estate, you don’t need a lot of money to get started. You also don’t have to manage tenants, repair, or deal with the hassles that come with owning an investment property. The management company takes care of property maintenance and will send you a check periodically. So it’s essentially a hands-off way to invest in real estate.
Invest in the stock market
The stock market has yielded approximately 9 to 10% return over the long term. This allows you to double your money every seven years or so.
The stock market is volatile. So instead of choosing individual stocks, you could buy a basket of stocks through an ETF or a mutual fund. Stocks are liquid – which means you can sell your stocks when you need cash. But in order to high annual returns, you need to hold them long-term.
Buy art
If you love art, buying art masterpieces can be a great investment. Art has given better returns than the stock market. But it’s not as liquid as the stock market. So it’s not something you can easily flip but if you are patient, long-term returns are appealing.
Art allows you to diversify your investment. Many art investors own art masterpieces for a long time and even pass them down to future generations.
To invest in art, you need to have a passion for the area. This allows you to know what art you need to buy. You can also work with an expert in the area. This person could be a dealer, a gallery owner, or a private collector.
Popular platforms such as Masterworks allow you to own art that is securitized – this means that you don’t have to purchase the entire art piece. You can invest only the amount you are comfortable with.