Buy stocks on dips
Smart investors buy when the rest of the market sells. When there’s a blood bath in the stock exchange, it brings an opportunity for investors to identify cheap stocks and accumulate them at a bargain price.
This is not an argument in favor of buying just any garbage stock when its price falls, sometimes there may be a good reason for such a fall. A great way to sniff out good quality cheap stocks is performing a relative valuation. The Price to Earnings (P/E) ratio is generally a good way to gauge the market. If the price falls below the historical averages, take a closer look and see if it's because there has been a fundamental change in the company or is it a result of a systematic or superficial reason.
If it's because of a fundamental change, stay away. However, if there’s no fundamental change, this is a good buying opportunity. When the price corrects, you stand to make plenty of capital gains. But when computing if this will double your money, be sure to factor in taxes.
High risk investments- options, margin trading, and penny stocks
If you find yourself snoring when people talk about investing through mutual funds or investing in government securities, you might just be a person who loves the thrill that accompanies high risk.
Before you put your hard-earned money into these extremely risky avenues, please take a moment and realize that these methods can generate infinite losses. They’re just as capable of wiping out your entire wealth in a jiffy, as they are of doubling your money.
Simple puts and calls are known as options. An option represents a specific number of shares, so for you to make a lot of profit, the price has to move up only marginally.
If you’re not too keen on learning about derivatives (i.e. calls, puts, etc.), but would like to leverage some useful information or a hunch – you can opt for margin trading or sell a stock short. These methods enable an investor to borrow money from their broker for buying or selling more shares than they actually own, thereby increasing the potential for profits (and losses). This method is not for the faint of heart.
The final way to double your money through high-risk investments is penny stocks. Before you invest in penny stocks, be aware that these prices reflect the sentiment of investors and the overall market towards these companies. However, if you still believe that the company is about to turn corners, penny stocks have the potential to make you very wealthy.
Slow and steady earning
Generally, riskier investments fetch higher-returns (provided things go your way) and can double your money faster. However, it’s best not to take on excessive risk, especially if you’re not an expert. The best way, then, to earn decent returns is through a well-diversified portfolio that comprises blue-chip stocks and investment-grade bonds, among other things. To calculate how long it will take to double your investment, use the rule of 72.
What’s the rule of 72?
Well, when you divide 72 by an expected annual rate of return – it gives you the number of years it will take to double your money. Let’s assume you have a portfolio that consists of stocks and bonds in equal weightage. You expect the stock to return 10% and the bond to return 6%. Your annual expected rate of return then becomes 8% (a simple average). In this case, it will take 9 years (72/8) to double your money, and 18 to quadruple it.
