Double your money on an investment? The phrase represents a holy grail for many. The challenge sounds especially daunting today when most “safe” investments are returning historically low returns. Bankrate, which tracks U.S. certificates of deposit, currently lists a 2.0% 5-year return on a $25,000 deposit.
According to investment author Ken Clark, doubling your money is still a realistic goal, but also one that can lure people to act impulsively. Clark, writing in Investopedia, presented five realistic strategies an investor can follow to double their money.
The Classic Approach
The classic approach is to earn gains slowly. An example is investing in a secure, non-speculative portfolio including investment grade bonds and blue chip stocks. This approach works on account of the “rule of 72,” referencing calculating how long it takes to double value based on compounded interest. Dividing the expected annual rate of return by 72 yields the number of years it takes to double the value.
Since blue chip stocks have gained about 10% over the past 100 years while investment grade bonds have gained about 6%, a portfolio split evenly among them will return about 8%. This means the value will quadruple in 18 years.
According to Stansberry Research, Warren Buffet turned $105,000 into more than $50 billion through compounding. He researched the best companies to invest in, then waited for their stock values to drop due to a scandal or a market collapse, then he bought.
‘Blood In The Streets’
The “blood in the streets” approach refers to instances when an investor feels they have to buy because everyone else is selling. This is also known as the “contrarian” approach. Stock prices of normally strong companies suffer slumps on occasion when fickle investors want to bolt.
Sir John Templeton and Baron Rothschild said smart investors buy when there’s “blood in the streets.” They were referring to the fact that good investments get oversold, presenting a buying opportunity for investors who know what they are doing.
The book value and price-to-earnings ratio offer barometers for determining when a stock is oversold. These metrics have established good historic norms in specific industries and broad markets. When companies fall below these historic averages for systemic reasons or superficial ones, an opportunity exists for investors to double their money.
The Safe Approach
Investors wary of risk find bonds a safe approach to growth. Zero-coupon bonds such as U.S. savings bonds can accomplish this goal. Such bonds are easy to comprehend. Rather than buying a bond paying regular interest, purchase one at a discount to its ultimate maturity amount.
Rather than paying $1,000 for a $1,000 bond paying 5% annually, buy it for $500. When it approaches maturity, its value rises until the holder is fully repaid the face amount.
There is no reinvestment risk in this approach. Standard coupon bonds carry the regular need to reinvest interest payments as they are received. Zero-coupon bonds do not incur the challenge of investing smaller rate payments or risking declining interest rates.
The Speculative Approach
For investors craving excitement and having an appetite for bigger risks, options, margin and penny stocks offer some of the fastest ways to double value.
Puts and calls enable one to speculate on the stock of any company. Investors who pay attention to specific industries are in a position to improve their portfolio’s performance using these stock options. Each stock option can represent 100 shares of stock, meaning a stock price could only have to rise a small percentage to return a big gain. This approach requires research, since options can suck wealth as fast as they can give it.
Those who want to leverage their faith in a stock but don’t have the patience to research options can sell a stock short or buy on margin. These techniques involve borrowing money from a brokerage house and purchasing more shares to boost potential profits. This technique takes guts since margin calls can corner one’s available cash while short selling can deliver infinite losses.
Bargain hunting is another technique that can boost returns. Whether one gambles on former blue chip companies selling at under one dollar or investing thousands of dollars into the next “big thing,” penny stocks can double in value in one day. A company’s stock price, whatever the amount, reflects what value other investors don’t see paying beyond.
The Best Approach Of All
The best way to doubling one’s investment pile is taking advantage of their employer’s matching contribution to their retirement plan. Receiving 50 cents on every dollar deposited is a sure way to build wealth.
Another important consideration is the fact that the money going into a 401(k) is tax deductible. This means every dollar invested costs the investor only 65 to 75 cents. For every 75 cents, investors receive $1.50 or more in their retirement fund.
For those who don’t have an employer-sponsored 401(k) plan and earn less than a certain amount, the federal government matches a portion of contributions to retirement accounts. The Credit for Qualified Savings Contribution cuts the tax of the contribution by 10% to 50%.
Do Your Homework
Doubling one’s money is a realistic goal, but investors need to be frugal. There are more scams promising unrealistic returns than safe bets.
This article gives an overview of a subject that is very serious to most people and deserving of significant consideration. In a free market society, the individual bears responsibility for their own wealth creation. Those who are serious need to allocate time to research investment options.
Since most individuals do not have the time to devote to extensive investment research, financial advisers are important. Finding the right advisor, however, requires research in itself.
Kiplinger.com, a long-time investor research firm, recently released an article on selecting an investment advisor. Following are some tips.
1) Learn financial professional vocabulary. Know the difference between an SEC registered investment adviser, a registered representative and an insurance agent. Know if the adviser’s compensation is fee-based or commission-based.
2) Be aware of all fees associated with investments. The fee-based adviser arrangement is a preferred method since it incentivizes ongoing planning. But it is important to be aware of investments held in a fee-base account since these are fees on top of the fee paid to the adviser.
3) Be aware of an adviser firm’s revenue sharing arrangements with mutual funds and annuity products. These arrangements can cloud an adviser’s advice. Big financial companies often have revenue sharing documents disclosing their conflicts of interest.
4) Be aware of an adviser’s affiliations. Some companies that seem independent are actually franchises of larger companies and therefore have the same conflicts of interest as larger companies.
The relationship an investor establishes with an adviser has to be based on trust to be mutually beneficial. The client in this relationship should feel comfortable asking the advisor any question they wish.
While it is not unreasonable for the advisor to feel frustrated at times working with a client, a good advisor wants the client to feel confident in their investment decisions.
Fidelity Investments is Mining Cryptocurrency
Fidelity Investments is a multi-billion dollar brokerage that just so happens to be mining cryptocurrency. In fact, it has been at it for three years, using its own computers to harvest bitcoin and Ethereum.
CEO Abby Johnson recently told Fortune that its U.S.-based mining operation is “making a lot of money.” This comes despite running a relatively modest operation.
Hadley Stern, Senior VP of Fidelity Labs, described his company’s venture as an “experiment.”
The real reason we began mining, and still do, is to learn how the network works, how consensus works, how difficulty levels work,” he said in reference to the mining process.
The key to profitability has been the dramatic rise in cryptocurrency over the past year. Bitcoin and Ethereum are the world’s No. 1 and 2 cryptocurrencies by market capitalization, and no-one else comes close.
Well Ahead of the Pack
The fact that Fidelity has been at this for three years speaks volumes about the company. Other, much bigger players are still dipping their toes in the market, but are unsure about how to proceed. Goldman Sachs is reportedly on the fence about starting a cryptocurrency trading operation, while J.P. Morgan has already begun handling customer orders for bitcoin-based instruments.
Fidelity is doing a lot more than just mining tokens. Earlier this year, it reached an agreement with Coinbase to let customers view cryptocurrency prices alongside other assets on their Fidelity homepage.
Coinbase is the world’s most funded cryptocurrency exchange with more than 7.4 million users.
The cryptocurrency market ended the week on a firm note, with bitcoin (BTC/USD) reaching a session high of $4,425.00. At press time, the index was up 1.6% at $4,368.
Ether is also trading higher against the dollar, with the ETH/USD rallying more than 3% to $305.
Ripple (XRP) lost momentum on Friday, but still managed a weekly gain of 21%.
Chinese Government Eyeing Fresh Bitcoin Legislation?
The Chinese government could roll out fresh cryptocurrency regulation in the coming months permitting licensed brokers to operate, based on recent information from Xinhua.
The state-owned news publication recently revealed that the government is mostly concerned with stamping out illegal activity involving bitcoin and other cryptos. Government authorities could be planning to regulate the market by creating a licensing program with strict Know Your Customer (KYC) and Anti-Money Laundering (AML) systems.
The Case for AML
The need for KYC/AML protocols has long been raised by cryptocurrency proponents, especially in reference to initial coin offerings (ICOs). In response, the blockchain community has come together to create the Simple Agreement for Future Tokens (SAFT). The SAFT is both an instrument and open-source framework for token sales that vets accredited investors.
SAFT activity is quickly gaining traction, with the likes of Gizer recently issuing a presale of its ICO through SAFTLaunch.
SAFT was officially created by Protocol Labs in close collaboration with AngelList and Cooley.
China’s Stance Looms Large for Cryptocurrency Market
Although digital assets have recovered from the China-induced flash crash of September, favorable regulations on the mainland could mean big business for bitcoin exchanges. Prior to the ban on ICOs and bitcoin brokers, Chinese investors were responsible for a quarter of all BTC trades.
According to Xinhua, China is likely to pursue a licensing program similar to Japan, a country that recently approved 11 cryptocurrency exchanges. CnLedger, a leading source of cryptocurrency news in China, recently had this to say:
“Xinhua News, official press agency of CN: Virtual currencies have become the top choices of underground economies. We shall adopt ‘0-tolerance policies’ towards crimes hidden underneath and take measures such as record-keeping, licensing, AML processes, real-name, limiting large transactions.”
Is China’s cryptocurrency ban temporary? It certainly looks that way. Regulators must already know that the ban hasn’t stopped mainland investors from buying cryptocurrencies next door in Hong Kong or Singapore. A saner approach to an all-out blanket ban is a tighter regulatory framework that will stamp out money laundering and other underground activities.
«Featured image from Shutterstock.»
Tim Draper Has Made Over $110 Million Since 2014 With his Bitcoin Investment
Tim Draper, the billionaire technology investor and prominent venture capitalist who has invested in some of the most successful technology startups in the likes of Coinbase, Patreon, SpaceX, Tesla, Box, FourSquare, has profited over $110 million from his investment in bitcoin less than three years ago.
In 2014, Draper participated in the auction of 144,336 bitcoins by the US government and the US Justice Department, which were seized during the investigation into Silk Road, a dark web marketplace. Draper was granted the permission to purchase a batch of 30,000 at around $600 from the US government.
Upon securing 30,000 bitcoins, Draper told Fox Business:
“[I’m] very excited about bitcoin and what it can do for the world. Bitcoin is as big a transformation to the finance and commerce industry as the internet was for information and communications. If bitcoin were here in 2008, it would be a stability source for our world economy. Everybody should go out there and buy a bitcoin. Every investor who’s a fiduciary should at least be partially involved in bitcoin because it’s a hedge against all the other currencies. There’s a whole ecosystem being built that’s going to make commerce much easier with much less friction and safer.”
Today, Draper’s 30,000 bitcoins are worth $129.9 million. Considering that Draper had spent $19 million purchasing the batch of 30,000 bitcoins in 2014, Draper has recorded a profit of over $110 million in less than three years.
While Draper held onto his investment in bitcoin, the US Justice Department was quick all of the 144,336 bitcoins seized during the Silk Road operation. According to various sources, the US government sold the majority of its 144,336 bitcoins at a price of $336, at $48 million. If the US government had sold its bitcoins in 2017, it would have generated an additional profit of around $573 million, as 144,336 bitcoins at today’s bitcoin price of $4,330 are worth $624.9 million.
Since 2014, in addition to purchasing tens of thousands of bitcoins, Draper has funded some of the most successful bitcoin companies in the cryptocurrency market including Coinbase and Korbit. Earlier this year, Coinbase secured a $100 million investment at a $1.6 billion valuation, while Korbit was acquired by the parent company of a $10 billion gaming company in Nexon at a $140 million valuation.
Furthermore, Draper has not sold his stake in Coinbase and earlier this year, Brian Armstrong, the CEO of Coinbase, revealed that Coinbase is still at an early stage in terms of developing and scaling. Armstrong noted that it will evolve into the safest and most trusted exchange in the global market.
“Digital currencies are having their ‘Netscape’ moment. The pace of innovation has been accelerating and we are now seeing exciting projects and companies being built on top of digital currencies. We’re beginning to transition into phase three of our secret master plan. Our goal is to be the safest, most trusted and compliant, and easiest to use. Not the first to market with new assets. Especially at scale, it takes time to ensure any new asset we add is well tested and secure,” said Armstrong.
Coinbase is also one of the two exchanges in the US market apart from Gemini that is targeting institutional and retail investors by providing sufficient liquidity. As Coinbase and its flagship cryptocurrency trading platform GDAX continue evolve, Draper will position himself at the forefront of cryptocurrency innovation and disruption.
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