Here's How to Double Your Money

NEW YORK (MainStreet) — Holding onto your investments during a volatile stock market can help you double your money.

If you invested $10,000 in 2004 in the S&P Composite Stock Price Index, it would be worth nearly $20,000 today. Or if you had socked away $10,000 in 1989, it would be worth over $107,000 today while if you had invested $10,000 in 1964, it would be worth over $1 million today.

A new Bankrate.com investing calculator which tracks the S&P Composite Stock Price Index performance over time can show investors how much their money is worth if they leave it in the stock market. Bankrate.com created this calculator using stock prices from Robert Shiller, the Yale economist. These calculations assume dividends are reinvested.

These impressive returns highlight the power of compounding and why it is so important to stay in the market through its ups and downs. The $10,000 invested in 2004 is a good example: the Great Recession hurt, but that investment still nearly doubled over the past ten years.

"Once you are invested in the stock market, just stick with it," said Bankrate.com senior investing analyst Sheyna Steiner. "Your money will eventually compound and will receive dividends and interest that will aid in the compounding. If you stick with your plan, over time you will have saved a lot of money even if you don't add a cent."

Investors in their 20s and 30s can take more risk and allocate more of their money in equities, but should maintain a diversified portfolio, she said.

"If you have a long period of time before retirement, you should take more risk to ensure as much return as possible, but dial back your risk when you are closer to retiring," Steiner said.

Rebalancing your portfolio during a downturn is a better option than selling stocks, she said.

The market will continue to be volatile in 2014, but the S&P 500 will end at 2,148, a 16% year-over-year increase, said Scott Rothbort, a portfolio manager at Covestor, a registered investment adviser with offices in Boston and London. The S&P 500 closed at 1,799 on Monday.

"2014 will deliver its highs and lows," he said. "Surprises and intrigue will humble investors and traders. While 2014 will not be as easy as 2013, it also will not be pleasant for the bears and hedge funds, both of which have suffered from performance issues during this bull market."

Investors should also keep any eye out for the midterm elections. During midterm election years, the S&P 500 (SPX) delivers on average, slightly negative returns for the first three quarters followed by a "superlative" fourth quarter, Rothbort said. This November all 435 seats in the House of Representatives and 33 of the 100 seats in the Senate will be contested along with 38 state and territorial governorships, 46 state legislatures and many state and local races.

"In fact, the fourth quarter of the midterm election year on average is the best of the sixteen election cycle quarters for the SPX," he said. "If history holds true to form, we should have a back-ended year for investors."

Equities remain the best option for investors right now since the equity markets are "fairly valued currently," said Grant Moore, a financial advisor with Savant Capital Management, based in Rockford, Ill.

"If you also take into account the fact that there really is no good alternative right now, given how low interest rates are on bonds, it appears that equities are still poised to do well over the intermediate term," he said. "Most investors should hold a combination of stocks, bonds, real estate and commodities. Since no one can predict accurately how specific asset classes will do relative to others, simply owning the whole market can prove to be a sound choice."

While investors should shy away from bonds, they should allocate money in their portfolio toward European small cap stocks, REITs (both domestic and foreign), master limited partnerships (MLPs), and high-quality dividend paying stocks, said Glenn Guard, director of investments for Campbell Wealth Management based in Alexandria, Va.

European small cap stocks will likely outperform American small caps with the U.S. stock market remaining flat, he said.

"After a 32% run last year, the S&P 500 is due for a pause," Guard said. "That doesn't mean we won't be in for a bumpy ride this year." Since many European countries will emerge out of a recession, there is a greater possibility of more upside, he said.

"In my opinion, more European small cap companies have the potential to post upside earnings surprises this year than in previous years," Guard said.

Determining the short term outcome of the market is always difficult, but since many companies are still projecting growth, their stocks should generate good returns, said Meredith Shuey Etherington, a senior investment advisor at Litman Gregory, based in Larkspur, Calif.

"It is very hard to time the market, so we look at a five-year time frame," she said. "We don't make short term predictions. The market is always volatile. We do see reasonable growth coming from equity investments. As long as earnings are still growing, the stock market should continue to rise over the longer term."

--Written by Ellen Chang for MainStreet

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