You might think you need to be some genius investor to double your money in just a few short years. But the reality is most people have an opportunity to double at least some of their money without any special investing knowledge.
Just by taking advantage of all the available benefits, you could easily double your money (or better) with the simplest of investing strategies. Here’s how.
Check out your company retirement plan
If your employer offers a 401(k) with a company match, it’ll be a lot easier to double your money.
Some companies match dollar for dollar up to a certain percentage of your paycheck. If that’s your situation, all you have to do to double your money is contribute that amount to your 401(k).
It’s much more common, however, for the employer to match $0.50 for every dollar on a higher percentage of your paycheck. Still, a 50% return just for saving for retirement is nothing to sneeze at.
Get some instant earnings on your tax return
If you’re taking advantage of your company’s 401(k) match, you’re probably already getting an instant return on investment of at least 50%. The government also wants you to save for retirement, so it’ll reward you, too.
Contributions to a 401(k) or any other retirement account are tax deductible. That means you exclude them from your income when you do your taxes. For example, if you make an average salary in your mid-30s of around $58,000, that puts you solidly in the 22% tax bracket. That’s an instant return on investment of 22%.
If you manage to save for retirement with a below-average income, the return can be even better. The government provides a credit for low-income households that contribute to a retirement account commonly referred to as the saver’s credit.
If your adjusted gross income (AGI) is less than $33,000 as an individual or $66,000 as a married couple, you qualify for the saver’s credit. This credit ensures you get at least a 22% return on your contribution in the form of deductions and credits, but it can go as high as 62% if you qualify for the 50% credit on your contribution.
Note that you can use the deduction from your retirement contributions to lower your AGI in order to qualify for the saver’s credit.
So if you get a 50% matching contribution and qualify for the 50% saver’s credit, you’ve already doubled your money. On top of that, you can take a tax deduction for the amount you contributed to retirement. And we haven’t even actually invested a dime yet.
Invest in the simplest and cheapest option
Most 401(k) plans limit you to a few select ETFs and mutual funds. Fortunately, most plans include a good index fund or two.
An index fund’s sole purpose is to track the market returns. It typically does this by owning all of the stocks in the specified market index. So, if you buy an S&P 500 index fund, you’re effectively buying a small piece of about 500 of the largest U.S. companies. If you buy a total stock market index fund, you’re buying a small piece of over 3,000 companies.
The fees on index funds are generally lower than actively managed mutual funds or target-date funds, which are popular options in a 401(k).
As an early investor with limited experience, your goal should be to match the overall market returns. Investing in a broad-based index fund that tracks the S&P 500 or the total stock market is the simplest and most cost-effective way to do so.
The stock market average return is around 7% adjusted for inflation. Earning that return on your investment will double your money in about 10 years. All you have to do is wait.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.