Yeah, it's an eye-catching headline, but Four Ways to Double Your Money in Five Years from Smart Money magazine is pushing it a bit. After all, in order to double your money in five years, you'll need to earn an average of 14.9% annually -- something that's not easy to do. That said, here are their four options for potentially doubling your money in five years:
- Investing
- Real estate
- Starting a business
- Savings and spending
In my opinion, they may be smoking something over there at Smart Money. Earning 10% on your money is difficult enough -- earning 14.9% consistently is virtually impossible. And yet...
...if you look at the question a bit differently, there is hope. For instance, having twice the amount of money in five years from now is much easier than trying to make your money double in five years. The latter takes a fixed amount and tries to make it earn an average of 14.9% per year in order to double. That's hard to do. But the former allows you to both have current investments earn part of the needed return as well as allows you to add to the pile with savings from current income. That's why I think their last idea, savings and spending, is the best of the four ideas. Here's what else they have to say about it:
To save even more money, take aim at your life's biggest expenditures — your house and your wheels. Start in your driveway, where buying used instead of new can pay off big. Consider the Acura TL. If you buy it new at around $42,000, your five-year ownership costs — everything from fuel and maintenance to that old devil, depreciation — will amount to a little under $58,000, according to the car-advice site Edmunds.com. Buy a three-year-old used model, and your costs will be about $12,000 less. Duplicate that strategy in a two-car family, and you've freed up $24,000.
Next, take a trimmer to the monthly mortgage payment. The spreads in interest rates between fixed- and adjustable-rate mortgages are fairly narrow right now. But rates have been sliding, and anyone who recently locked in a mortgage stands a good chance of finding a better deal — even more so if they hold an adjustable loan that has reset to a higher rate. On a $400,000 mortgage, the difference between a loan at 7.5% and one at today's prevailing rates of 6.25% would add up to more than $20,000 in payments over five years.
I can attest to the fact that this method works and can do much better than doubling your money -- it certainly has for me over the past decade. If you keep your expenses low (spending less than you earn) and thus have a decent amount you can add to your nest egg each year, your net worth should easily be able to double every five years.
For more ideas on how you can make your net worth grow rapidly, see The Ten Best Money Moves You Can Make.
It's really easy to double your money in real estate. And you don't even have to have any money to get started!
You can get a stated-income loan to buy nearly any property with no money down, and get cash back at closing. Cash back at closing = Profit! It helps if you buy several properties at once, as once you have one or two, your DTI is too high and it may be difficult to get financed. Anyway, cash back at closing is the first part of a sweet deal. The second part is, once your properties double in value (in a year or two), you can sell them and get more cash.
Posted by: Casey Serin | February 14, 2007 at 09:46 AM
Casey -- Aren't you facing foreclosure? (At least that's what your URL says.) ;-)
Posted by: FMF | February 14, 2007 at 10:02 AM
I'm a Realtor in upper NYS. Maybe we're unsophisticaed up here, but I've not yet seen anyone get cash back at closing that they weren't in one way or another actually paying for. And I would strongly urge folks who believe they're going to quickly double their money, buy for no money down, and/or get cash back at closing to make sure they are working with a reputable bank and loan origination officer. Not only might you be misled, and find yourself in incredible debt that can't pay its own way (meaning: you will have to dig so deeply into your own pocket to sustain that debt that you find your fingers scratching a hole down there), you might find yourself involved in bank fraud.
Posted by: Carol Frome | February 14, 2007 at 10:23 AM
I wouldn't say it is impossible to double your money in five years... heck, I have a certain amount of money for which I plan to double within four years.
- Owning a business is a very good way to do this (but not just any business). The key here is to find a business that does not require a lot of money to be invested, and that does not require an extreme amount of hand holding. There are some MBN bloggers that are on the right track already.
- Real estate is another method where you can double your money, but you have to be extremely knowledgeable about real estate markets and time it (which is very difficult).
- Investing is one of the more tricky ways to double your money quickly, but certainly not impossible. I have a certain set of stocks I am looking into, and they can meet the task in four-to-five years, but they won't always do this... just probably for the next decade or two.
The key to all of this is that it is very possible, but you have to always seek new opportunities to increase your money.
Posted by: Dus10 | February 14, 2007 at 11:15 AM
Have I told you I love your Blog? It seems like the subjects are always good, and the content is great! I always seem to want to comment...
It only takes 15% return on your money to double it in 5 years?? Nice... i didn't know it only took that little to double it. Thought it always took 20-30 years? I guess I never took the time to do the math. Thanks for the info!
Posted by: Quang | February 14, 2007 at 09:03 PM
Quang: Here's the Rule of 72: Divide any rate of return into 72. The answer indicates the approximate number of years it will take to double your money. So, 72/15 = 4.8 years.
Put your money in a Money Market account earning 4.75? It'll take a little more than 15 years to double. It's a handy little rule.
Posted by: Carol Frome | February 15, 2007 at 12:16 PM
Easy to do with the real estate market in Washington DC. I bought a house in 2000 for $273,000, Six and a half years later the house is now worth $560,000.
I plan to hang on to it for another six years, but if I sold it now, I would see $360,000 (tax-free because we're both over 55). Let's see, I put down $53,000 so if I sold right now, that would be 6.8 times my money.
Real estate is the ONLY way for the little guy to make that kind of money.
Posted by: RBO | February 19, 2007 at 11:43 AM