Seeing their money double is the dream of every investor and if that dream is realized in a short span, it is cherry on the cake. But more often than not, the immediate effect of fantasizing about doubling their money is a barrage of questions that plagues the investor. Starting from; how do I double my money? Is there a way I can do so in a short period? Are the guaranteed money double schemes Ponzi? Where can I invest to double my money? so on and so forth.
This list is never-ending and revolves around the risk of losing money over the greed of doubling it. But is it possible to double your money within a time frame you set? The short answer is yes and there are many ways to do so.
Now whenever we talk about doubling wealth over a period of time, an important rule, called the ” Rule of 72″ is employed for calculation. Let us see this rule in action and how it can help you double your money over the years. Read on!
Of the so many thumb rules present on the investment market, the rule of 72 is the most commonly used one. The rule of 72 helps determine how many years will it take for your money to double at the given rate of returns.
For example, if you are invested in an instrument that generates a return of say 12% per annum with a principal investment of Rs. 20,000 then your Rs. 20,000 will turn in Rs. 40,000 over a span of 72/12 = 6 years.
the rule of 72 is extremely beneficial in comparing two investment avenues to know which one will double your money faster or even in comparison of two mutual funds for the same reason.
If you are an aggressive investor and wish to see your money double itself in a span of 1 year then according to the rule of 72, you need to invest in avenues that provide annualized returns ranging between 70% to 72% (72/72 = 1).
Doubling Your Money In 5 years
Moving, ahead, if you are aiming towards a mid-term goal to be realized and wish your money to be doubled in a span of 5 years, then you must look out for avenues that provide annualized returns of at least 14.5% (72/5= 14.4) and more adjusting the inflation.
Doubling Your Money In 10 years
On the same grounds, planning for a long-term goal which says 10 years ahead like funding your child’s higher education or buying a home etc, you need a rate of return around 7.5% to double your money in a span of 10 years.
Now that you have understood how this rule works, let’s see how you can put this in action.
Doubling money requires a lot of calculation and speculation. Having your goals set and a clear vision of how to go about them lays the foundation of wealth creation and if you have a specific number that needs to be attained, you need to select avenues carefully. Doubling money can be done in two ways:
There is always a risk-return tradeoff. While risk is subjective and means and is difficult to gauge, the more risk you are willing to stomach, the more returns you can expect on your investments.
The risky method calls for an aggressive investor who keeps an eye on every move market makes and adjusts the investment strategy accordingly. Here are some investment options you must consider under this category to double your money quickly;
2.Start-up partnership : Another very famous way of growing your money to greater heights is to become a partner in a start-up or any small business. Before you put your money in any such business, make sure you are well aware of their growth strategy and how will It complement your dream of doubling money over the desired period.
3. Gold and Digital Gold: The yellow metal has captivated Indians since time immemorial. And still hasn’t lost its sheen as far as investing is concerned. From an investment point of view, gold ETFs , though highly volatile , depending on the stock market, have the potential to fetch 20-22% CAGR over a period of 5 years. Which essentially means, you can expect your money to double in a span of 3 to 4 years.
4. Real estate: In the riskier segment, a real estate is a favorite option of a lot of investors which doubles the money under 5 years. However, it can prove to be a risky bet if you venture without studying the markets carefully. However, if you have thoroughly analyzed and studies past trends and have a knack of predicting how the future trends would look like, real estate has the potential of fetching returns quickly.
Apart from the risky deals, you can also go for safer ways of investments which will help you double your money. Here are some of them;
1. Mutual funds: If you have an investment horizon of around 6 to 7 years, mutual funds are the best option to see your money double. They are a safe way to push your money in the investment market and can eventually provide a return of around 12% to 14 %. You can have a diversified equity portfolio with a long term investment horizon to reap the desired benefits.
2. Debt funds: these are a segment of mutual funds that are invested in debt funds and stocks only which are the safest of all. Investing in debt funds can you double your money in around 7 years with an annualized return of around 7-9%
3. Company fixed deposit: these are different from bank fixed deposits as you are keeping a fixed deposit with a company. Company fixed deposits have provided returns of over 13% and can help you achieve your goal of doubled money in around 6 years.
4. Bonds: with an annualized return of around 8%, bonds can help you double your money in a span of around 9 years.
5. Bank fixed deposits: Bank Fixed deposits are the most common household name as far as investments are concerned. Bank Fixed Deposits provide returns of around 8% to 9% with a different and higher percentage for senior citizens. You can see your money double in around 8 to 9 years.
Now once you have decided the avenue you want to invest in based on how much risk you can stomach, your understanding of the investment instrument etc, you can then apply the rule of 72 to see how soon can you double your money. A prudent move would be to have a mix of both risky and safer investment options to hedge your risks. Doubling your wealth within the timeframe you desire is a reality only if you exercise the necessary caution, know what you are getting into, have a sound investment strategy and are actively involved in tracking the performance of your portfolio. So stay informed, stay updated, and invest wisely.
Disclaimer: The views expressed in this post are that of the author and not those of Groww.