Double Your Money by Investing Long Term

The world of investing may seem daunting, and many may be in a hurry to earn returns from their investments. However, sticking to the basics is key, and keeping a long-term vision can be advantageous.  Incorporating a long-term perspective can transform your financial future and has a very high probability of doubling your capital with benefits like compounding returns, protection against market turbulence, tax benefits, and growth.

A financial advisor can help you grow your money by investing for the long term. This article will also discuss the benefits of long-term investing and how to double your money by being patient and adopting the right practices.

Below are four investment strategies that you can consider to double your money by investing  long term:

1. Focus on the long term while staying consistent with your investments

Staying on course can help you eventually double your money. Patient investment in stocks, bonds, and other similar market instruments can result in significant wealth accumulation. Despite initial slow growth and potential mistakes, staying the course in the stock market can lead to remarkable financial outcomes over time. In the early years of investing, your returns may appear modest, and the process can seem tedious, especially during periods of market volatility. However, these early stages are just the beginning. Over time, the compounding effect takes over, and your returns generate their own returns,  leading to exponential growth. Consistently reinvesting earnings, whether they come from dividends or capital gains, helps you significantly amplify your initial investments.

The concept of compounding is fundamental to long-term investing. Compounding refers to the process where the earnings from your investments generate their own earnings. As time progresses, your initial investment not only grows by the returns it generates but also by the returns on those returns. For example, if you invest $12,000 annually with an 8% average return, your money can grow substantially over decades. In the first five years, the total investment of $60,000 can grow to around $76,000, which might not seem impressive. However, as time progresses, the compounding effect becomes more pronounced. By the 20-year mark, the initial investment of $240,000 can grow to over $593,000, and by  30 years, the portfolio value can potentially exceed $1.4 million. Moreover, as your portfolio grows, the impact of market gains becomes more significant. For instance, if you are wondering how much interest  1 million dollars earns, here is an example that can help you understand:

A 1% increase on a $1 million portfolio you have accumulated over the years results in a $10,000 gain,  far more than a 1% gain on a $10,000 portfolio you would have invested initially. This compounding growth leads to increasingly larger returns as your investment base expands. The larger your portfolio,  the more significant each percentage gain becomes, making it easier to achieve substantial growth over time.

Another significant benefit of long-term investing is the reduced impact of market volatility. Over the short term, markets can be highly volatile, and stock prices can fluctuate frequently due to various economic, political, and other factors. However, over the long term, these fluctuations tend to smooth out. The overall trend of the market has historically been upward. So, you can be better positioned to

absorb short-term market fluctuations if you stay invested for the long run. Regular contributions play a crucial role in long-term investing. Consistently investing a set amount of money, regardless of market conditions, allows you to benefit from dollar-cost averaging, which refers to buying more stocks when prices are down and fewer stocks when prices are high, ultimately reducing the average cost of your investments over time. Combined with the power of compounding, regular contributions can lead to exponential growth. As your investment base grows, the returns on your investments become more substantial, potentially surpassing your annual salary.

Long-term investing also results in relatively lower transaction costs. Buy-and-hold strategies help you reduce the frequency of trades, which in turn minimizes the associated costs, such as brokerage and taxes. Lower transaction costs mean that more of your money remains invested, which further enhances the compounding effect, contributing to the overall growth of your portfolio.

2. Invest in real estate

Investing in real estate can be a suitable strategy to double your money over the long term. Despite being an expensive investment initially, real estate offers unique advantages such as appreciation and passive income opportunities, which can result in substantial financial growth.

Investing in real estate provides the potential for property appreciation, which often does not correlate directly with stock market trends. Property values can increase substantially based on various factors such as location, demand, and economic conditions. For example, buying property in an area that is expected to develop in the near future can potentially result in appreciation that far exceeds the average returns of the stock market. With proper research, you can strategically invest in properties and earn impressive returns as the property value grows over time. Real estate investments also provide the potential for passive income. You can earn a reliable and steady stream of rental income by leasing out property, whether for residential or commercial purposes. This not only helps cover mortgage payments and other property-related expenses, such as renovation, maintenance, and repairs but also contributes to overall wealth accumulation. Over time, as rental rates increase and your mortgage balances decrease, the net income from your property can significantly enhance your financial position.

One of the drawbacks that people associate with investing in real estate is the high cost of investment.  However, you can sidestep this with leverage. Leverage allows you to purchase a real estate asset with a relatively small initial investment. Suppose you buy a home for $200,000, for which you make a down payment of 20%, which is $40,000. The remaining $160,000 is financed through a mortgage. Over time,  the value of the property increases by 20%, rising from $200,000 to $240,000. This appreciation results in a $40,000 increase in the property’s value. Initially, your equity in the home is the down payment,  which is $40,000. With the property now worth $240,000, you still owe the $160,000 mortgage. But your new equity will be $240,000 – $160,000 = $80,000 (the current home value minus the mortgage balance). The capital gain will amount to $40,000, so with a 20% increase in the property’s value, you would have doubled your initial $40,000 investment to $80,000.

The benefits of real estate investment compound over time. As you continue to hold the property, not only does its value potentially continue to appreciate, but the mortgage balance also decreases as you make regular payments. This dual effect further increases your equity and net worth. Additionally,  reinvesting rental income into other real estate projects or making property improvements to the existing home can further enhance your returns.

Real estate also offers diversification benefits and reduces overall investment risk. Unlike stocks, which are virtual investments, real estate is a tangible asset that often retains value even during economic downturns. It can also enhance value with inflation. These unique characteristics, along with the option to generate rental income, can provide you with a cushion against market volatility.

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3. Consider REITS

A Real Estate Investment Trust (REIT) is another way to invest in real estate. With REITs, you can invest in properties without directly managing them. REITs are funds that own, operate, and finance income-generating residential and commercial real estate. They pay out dividends, which can provide a steady stream of income for you. They can be a reliable source of money in addition to potential capital appreciation.

REITs also offer exposure to a wide range of properties, including residential apartments, offices, and other commercial properties within a single investment. This enables you to diversify your portfolio while mitigating risk. Moreover, investing in REITs is much simpler than investing in real estate directly.  The process is straightforward; you do not need a mortgage. The need to manage the property or worry about maintenance is also eliminated. All you need is a brokerage account, similar to purchasing stocks.

How much you earn in a year from REITs can depend on the type of REIT you invest in. There are multiple options for REIT investments, such as publicly traded REIT index funds and REIT Exchange Traded Funds (ETFs). REIT index funds track specific REIT indexes and offer broad exposure to the real estate market without needing to select and manage individual REIT stocks. REIT ETFs invest in a diversified combination of equity REITs and other related derivatives. They are typically passively managed and traded on major stock exchanges. REIT ETFs can be bought and sold throughout the trading day, which makes them an accessible option for most investors.

4. Enjoy tax advantages

Capital gains taxes are levied on the profits earned from the sale of various assets, including stocks, real estate, mutual funds, ETFs, and other investments. There are two types of capital gains based on which  you are taxed:

a. Short-term capital gains tax: This is levied on profits from selling an asset held for less than a year. Short-term gains are taxed at the same rate as your ordinary income. Ordinary income tax brackets as of 2024 include 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These tax rates can be quite high, reaching up to 37% if you fall under the highest tax bracket, depending on your total income. This can significantly reduce your overall investment returns, making short-term trading less attractive from a tax perspective.

b. Long-term capital gains tax: In contrast, long-term capital gains taxes apply to assets held for more than a year. Long-term capital gains tax rates are generally lower, ranging from 0% to 20%. As these are typically much lower than the ordinary income tax rates, holding investments for longer periods allows you to effectively double your investment. Here are the long-term capital  gain tax rates:

Evidently, long-term investments can significantly enhance your overall returns.

Long-term investing can also offer lucrative returns when you use tax-advantaged accounts. Accounts like a 401(k), traditional Individual Retirement Account (IRA), and others allow your investments to grow tax-deferred. When you invest through a 401(k) or a traditional IRA, you contribute pre-tax dollars,  which reduces your taxable income for the year and provides an immediate tax benefit. Your investments then grow tax-deferred, and you do not pay any tax on your earnings until you withdraw the money in retirement. This allows for significant compounding growth, as the money that would have gone to taxes remains invested, earning additional returns. Contributions to a Roth IRA are made with after-tax dollars, so you do not get an immediate tax deduction. However, the key benefit is that your investments grow tax-free, and all qualified withdrawals after the age of 59.5 are also tax-free. This can be particularly helpful if you expect to be in a higher tax bracket in the future. The longer you hold your investments in a Roth IRA, the more you benefit from the tax-free growth.

To conclude

Investing for the long term encourages a disciplined approach, and offers the potential to double your money, enjoy capital appreciation, and reduce your taxes. It also lowers costs incurred on frequent trading and the likelihood of impulsive decisions based on short-term market movements. Overall, long term investing can help you potentially double your money while offering you peace of mind. However,  it is important to select the right vehicles for growth. You can consider hiring a financial advisor who can advise you on suitable investment instruments that will allow you to enhance your gains and reach your goals sooner.

Use WiserAdvisor’s free advisor match service to get matched with experienced financial advisors who can help you with your investments and recommend suitable strategies to invest in for the long term.  Simply answer a few questions about your financial needs and goals, and get matched with 2 to 3 vetted financial advisors. There is no obligation to hire. The advisors also offer a free initial consultation.