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Five Ways to Double Your Investment



Five Ways to Double Your Investment


That said, doubling yourmoney is a realistic goal that an investor should always aim for. Broadlyspeaking, there are five ways to get there. The method you choose dependslargely on your appetite for risk and your timeline for investing.


KEY TAKEAWAYS
  • There are five key ways to     double your money, which may include using a diversified portfolio or     investing in speculative assets.
  • Broadly, investing to double     your money can be done safely over several years, or quickly, although     there’s more of a risk of losing most or all of your money for those that     are impatient.
  • Speculative ways to double     your money may include option investing, buying on margin, or using penny     stocks.
  • The best way to double your     money is to take advantage of retirement and tax-advantaged accounts     offered by employers, notably 401(k)s.

1. The Classic Way—Earning It Slowly
Investors who have beenaround for a while will remember the classic Smith Barney commercial from the1980s in which British actor John Houseman informs viewers in his unmistakableaccent that "they make money the old fashioned way—they earn it."1

When it comes to themost traditional way of doubling your money, that commercial is not too farfrom the truth. The time-tested way to double your money over a reasonableamount of time is to invest in a solid, non-speculative portfolio that'sdiversified between blue chip stocksand investment-grade bonds.

It won't double in ayear, but it should, eventually, given the old rule of 72. Therule of 72 is a famous shortcut for calculating how long it will take for aninvestment to double if its growth compounds. Just divide 72 by your expectedannual rate. The result is the number of years it will take to double yourmoney.

Considering that large,blue chip stocks have returned roughly 10% annually over the last 100 years andinvestment-grade bonds have returned roughly 4% over the same period, aportfolio divided evenly between the two should return about 8% a year.
Dividing 72 by that expectedreturn rate indicates that this portfolio should double every nine years.That's not too shabby when you consider that it will quadruple after 18 years.

When dealing withlow ratesof return, the rule of 72 is a fairly accurate predictor. This chartcompares the numbers given by the rule of 72 and the actual number of years itwould take these investments to double in value.


  Rate of Return
  
  Rule of 72
  
  Actual no. of Years
  
  Difference (no.) of  Years
  
  2%
  
  36,0
  
  35,0
  
  1.0
  
  3%
  
  24,0
  
  23.5
  
  0.5
  
  5%
  
  14,0
  
  14.2
  
  0.2
  
  7%
  
  10.3
  
  10.2
  
  0.1
  
  9%
  
  8.0
  
  8.04
  
  0.0
  
  12%
  
  6.0
  
  6.1
  
  0.1
  
  25%
  
  2.9
  
  3.1
  
  0.2
  
  50%
  
  1.4
  
  1.7
  
  0.3
  
  72%
  
  1.0
  
  1.3
  
  0.3
  
  100%
  
  0.7
  
  1.0
  
  0.3
  
Notice that, although it gives a quick and rough estimate, the rule of 72
gets less precise as rates of return become higher.


2. The Contrarian Way—Blood in the Streets
Even the mostunadventurous investor knows that there comes a time when you must buy, notbecause everyone is getting in on a good thing but because everyone is gettingout.
Just as great athletesgo through slumps when many fans turn their backs, the stock prices ofotherwise great companies occasionally go through slumps, which accelerate asfickle investors bail out. As Baron Rothschild supposedly once said, smartinvestors "buy when there is blood in the streets, even if the blood istheir own."

Nobody is arguing thatyou should buy garbage stocks. The point is that there are times when goodinvestments become oversold, which present a buying opportunity for investorswho have done their homework.

The classic barometersused to gauge whether a stock may be oversold are the company's price-to-earningsratio and book value. Bothmeasures have well-established historical norms for both the broad markets andfor specific industries. When companies slip well below these historicalaverages for superficial or systemic reasons, smart investors smell anopportunity to double their money.


3. The Safe Way
Just as the fast laneand 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 itsafe, bonds can be a less hair-raising journey to the same destination.Consider zero-couponbonds, including classic U.S. savings bonds, for example.

For the uninitiated,zero-coupon bonds may sound intimidating. In reality, they're simple tounderstand. Instead of purchasing a bond that rewards you with a regularinterest payment, you buy a bond at a discount to its eventual value at maturity.

For example, instead ofpaying $1,000 for a $1,000 bond that pays 5% per year, an investor might buythat same $1,000 bond for $500. As it moves closer and closer to maturity, itsvalue slowly climbs until the bondholder is eventually repaid the face amount. One hidden benefit isthe absence of reinvestment risk. With standard coupon bonds, there are thechallenges 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.


4. The Speculative Way
While slow and steadymight work for some investors, others find themselves falling asleep at thewheel. For these folks, the fastest ways to super-size the nest egg maybe the use of options, margin trading orpenny stocks. All can super-shrink a nest egg just as quickly.
Stock options, such assimple puts and calls, can be used tospeculate on any company's stock. For many investors, especially those who havetheir finger on the pulse of a specific industry, options can turbo-charge aportfolio's performance.

Each stock optionpotentially represents 100 shares of stock. That means a company's price mightneed to increase only a small percentage for an investor to hit one out of thepark. Just be careful, and be sure to do your homework before trying it. Forthose who don't want to learn the ins and outs of options but do want toleverage their faith or doubts about a particular stock, there's the option ofbuying on margin or selling a stock short.

Both of these methodsallow investors to essentially borrow money from a brokerage house to buy orsell more shares than they actually have, which in turn raises their potentialprofits substantially. This method is not for the faint-hearted. A margin call canback you into a corner, and short-selling can generate infinite losses.

Lastly, extreme bargainhunting can turn pennies into dollars. You can roll the dice on one of thenumerous 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 mindthat the low prices of these stocks reflect the sentiment of most investors.


5. The Best Way
While it's not nearly asfun as watching your favorite stock on the evening news, the undisputedheavyweight champ is an employer's matching contribution in a 401(k) oranother employer-sponsored retirement plan. It's not sexy and it won't wow theneighbors, but getting an automatic $0.50 for every dollar you save is tough tobeat.

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

If you don't have accessto a 401(k) plan, you still can invest in a traditional IRA or a Roth IRA. Youwon't get a company match, but the tax benefit alone is substantial. Atraditional IRA has the same immediate tax benefit as a 401(k). A Roth IRA is taxedin the year the money is invested, but when it's withdrawn at retirement notaxes are due on the principal or the profits.

Either is a good dealfor the tax-payer. But if you're young, think about that Roth IRA. Zero taxeson your capital gains? That's an easy way to get a higher effective return. Ifyour current income is low, the government will even effectively match someportion of your retirement savings. The RetirementSavings Contributions Credit reduces your tax bill by 10% to 50% ofyour contribution.


Conclusions
Be Wary
There are probably moreinvestment scams out there than there are sure things. Be suspicious wheneveryou're promised results. Whether it's your broker, your brother-in-law or alate-night infomercial, take the time to make sure that someone is notusing you to double their money.












凡事唯有投入,結果才能深入; 凡事唯有付出,結果才能傑出; 凡事唯有磨鍊,結果才能熟練; 凡事唯有不煩,結果才能不凡。
能與智者同行,你會不同凡響;能與高人為伍,你能登上巔峰。
你雖不能改變環境, 但卻可以轉換心境;你雖不能樣樣勝利,但卻可以事事盡力。
Dr. Chao Yuang Shiang (PH.D in management), Assistant Professor,Dep. of Finance & Institute of financial management, Nan Hua University.
1# edward


Warren Buffet Wise Investment Strategy
1. Stick With Long Term Value Investing Strategies


Don’t let fear and greed change your investing criteria and values. Avoid being overwhelmed by outside forces that affect your emotions. Never sell into panic.

2. Invest in What You Understand


Buffet only invests in companies he understands and believes have stable or predictable products for the next 10 – 15 years. This is why he has typically avoided technology companies.


凡事唯有投入,結果才能深入; 凡事唯有付出,結果才能傑出; 凡事唯有磨鍊,結果才能熟練; 凡事唯有不煩,結果才能不凡。
能與智者同行,你會不同凡響;能與高人為伍,你能登上巔峰。
你雖不能改變環境, 但卻可以轉換心境;你雖不能樣樣勝利,但卻可以事事盡力。
Dr. Chao Yuang Shiang (PH.D in management), Assistant Professor,Dep. of Finance & Institute of financial management, Nan Hua University.
2# edward

3. Invest Like You Are Buying the Entire Company

Treat investing in a stock as though you are buying the entire company. I always take a hard look at enterprise valuebecause this is the total price of a company. In other words, it is the price you would be paying for the company if you could buy the whole company at current prices.

4. Companies with Competitive Advantages

Companies with pricing power, strategic assets, powerful brands, or other competitive advantages have the ability to outperform in good and challenging times. A long term investing strategy requires investing in companies that can weather both good and bad economic times.
凡事唯有投入,結果才能深入; 凡事唯有付出,結果才能傑出; 凡事唯有磨鍊,結果才能熟練; 凡事唯有不煩,結果才能不凡。
能與智者同行,你會不同凡響;能與高人為伍,你能登上巔峰。
你雖不能改變環境, 但卻可以轉換心境;你雖不能樣樣勝利,但卻可以事事盡力。
Dr. Chao Yuang Shiang (PH.D in management), Assistant Professor,Dep. of Finance & Institute of financial management, Nan Hua University.
3# edward

5. Find Quality Companies

Buffet believes in quality investing. He would rather pay a fair price for a great company than a low price for a mediocre company.

6. Keep Cash On Hand

Investment opportunities become available through broad market corrections or individual stocks that become bargains. These are not predictable events; so cash on hand is an important concept in value investing.
凡事唯有投入,結果才能深入; 凡事唯有付出,結果才能傑出; 凡事唯有磨鍊,結果才能熟練; 凡事唯有不煩,結果才能不凡。
能與智者同行,你會不同凡響;能與高人為伍,你能登上巔峰。
你雖不能改變環境, 但卻可以轉換心境;你雖不能樣樣勝利,但卻可以事事盡力。
Dr. Chao Yuang Shiang (PH.D in management), Assistant Professor,Dep. of Finance & Institute of financial management, Nan Hua University.
4# edward

7. Require a Margin of Safety

Purchasing stocks with a margin of safety below their intrinsic value reduces risk and provides an allowance for unforeseen negative events.

8. Compounding and PatienceBuffet believes in long term value investing because he understands the power of exponential growth. Companies with sustainable profits can pay and grow their dividends. There are few more powerful long term investing strategies than dividend growth compounding.

凡事唯有投入,結果才能深入; 凡事唯有付出,結果才能傑出; 凡事唯有磨鍊,結果才能熟練; 凡事唯有不煩,結果才能不凡。
能與智者同行,你會不同凡響;能與高人為伍,你能登上巔峰。
你雖不能改變環境, 但卻可以轉換心境;你雖不能樣樣勝利,但卻可以事事盡力。
Dr. Chao Yuang Shiang (PH.D in management), Assistant Professor,Dep. of Finance & Institute of financial management, Nan Hua University.
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