The investing world is full of empty promises, and there are plenty of investments that are guaranteed to make you big money overnight. In general, however, if it sounds too good to be true, it probably is.
However, with the right strategy, investing in the stock market can be a fantastic way to build long-term wealth – and you don’t have to invest a lot of money to reap the rewards. While investing isn’t a “get-rich-quick” tactic, there are a few easy (and legitimate) ways to effortlessly double your money.
1. Take advantage of passive investments
One of the easiest ways to make money on the stock market is to invest in passive investments such as index funds or exchange traded funds (ETFs). While actively managed funds have a professional who chooses stocks within the fund, passive funds track certain stock market indices, such as the S&P 500 or the Dow Jones Industrial Average, and try to reflect their performance.
In other words, by investing in, say, an S&P 500 ETF, you will instantly invest in all of the stocks that make up the S&P 500 Index. The S&P 500 includes stocks of 500 of the largest companies in the United States, and you can expose yourself to all of them with just one investment.
While it may seem counterintuitive, passive funds like index funds and ETFs tend to outperform actively managed mutual funds. In fact, between 2010 and 2020, only 24% of actively managed funds managed to outperform their passive peers, according to a Morningstar study.
With passive investing, not only is it easy to invest in some of the strongest companies in the world, but your money is also more likely to grow faster.
2. Don’t try to time the market
One of the most intimidating aspects of investing in the stock market is knowing what to do during market downturns. When the market starts to deteriorate, it can be tempting to sell your investments and withdraw all your money.
However, selling your investments in times of volatility can be a major risk as it is about trying to synchronize the market. When you time the market, you try to sell your stocks just before prices start to fall, and then reinvest when prices are low.
Although this sounds like a smart strategy, it is almost impossible to implement it. The stock market is unpredictable and no one knows exactly when market declines will occur or how long they will last. If you sell or buy at the wrong time, you could end up losing money.
So you are better off holding onto your investments during times of volatility. Keep in mind that you won’t lose money if you don’t sell your stocks. Even if the market collapses, as long as you don’t sell, there’s a good chance that your investments will eventually bounce back and you won’t lose money.
3. Leave your money alone
It takes time for your money to grow. To earn the most, it’s best to leave your investments alone for several years or, ideally, decades.
The more you let your money grow, the more you can potentially earn. Compound interest helps your savings grow exponentially as they have time to accumulate, like a snowball rolling down a hill. It will take time for the snowball to pick up speed, but after a while it will start to grow bigger and roll faster down the hill. The more it goes down this hill, the bigger it will become and the faster it will grow.
Put it all together
By taking advantage of these three strategies, you can easily double your money.
Say, for example, you invest in an S&P 500 ETF and earn a modest average annual return of 7% on your investments, which is just below the long-term market average. If you invested $ 1,000 now and didn’t make any additional contributions, you would be doubling your money in about 10 years.
However, let’s say that in addition to your initial investment of $ 1,000, you continue to invest $ 100 per month with all other factors remaining the same. In this scenario, you would reach $ 2,000 in less than a year. After 10 years, you would have over $ 18,500. In 30 years, you would have accumulated approximately $ 121,000.
Investing in the stock market can be intimidating, but it doesn’t have to be. With the right strategy in place, you can easily double your money and build a wealth that lasts a lifetime.