If you invest long enough, it is possible that you will end up with twice as much money as you did when you started. It is incredible to accomplish this feat, and accomplishing it without spending extra money is even better!
However, it can be done, and it’s easier than you probably think. Here’s how long it would take, depending on how your accounts are split between stocks and bonds.
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The rule of 72
The rule of 72 is a popular way to estimate how long it will take to double your investment Asset allocation model. You just take the number 72 and divide the rate of return that you think you can expect. So if you think you will make 10% over the life of your investments, it would take roughly 72/10 = 7.2 years to turn $ 100,000 into $ 200,000.
A conservative portfolio
A portfolio that is 100% bonds would be considered conservative, and that allocation would have one average return of 6.1% between 1926 and 2020. Under the rule of 72, it would take 11.8 years to double your investment at that rate.
A moderately conservative portfolio
If you had added 30% stocks to your accounts during this period, your average return would have grown to 7.7%. According to the rule of 72, you would have twice as much money in 9.4 years.
A balanced portfolio
If you had a balanced portfolio, you’d hold 50% stocks and 50% bonds, and your return would have risen to 8.2% on average. At this rate of return, after around 8.8 years, you could double what you started with.
A growth portfolio
With a growth portfolio, you would have owned roughly 70% stocks and 30% bonds, and your return on that period would have been 9.4%. At that rate of return, it would take 7.7 years to double your money.
An aggressive growth portfolio
If you owned all of the stocks, your accounts would be considered aggressive and would have grown an average of 10.3% each year. And according to the rule of 72, the value of your account would have doubled after 7 years.
||Time to double up
It may be tempting to pick a return with the lowest number of doubling years, but this can make your goals even more difficult. These predictions of when your money could double are based on consistency and only missing some of the best Stock market Days could cut your returns a lot.
For example, if you had invested in the S&P 500 from January 2, 2000 through December 31, 2020, you would have an average return of 7.5% and your money would have doubled every 9.6 years. But missing the 10 best days in this 20 year period would have dropped your return to 3.35% – and with that return it would take 21 years to double your investments!
It is also possible that your willingness to take risks diminishes as you age. If so, you may find that you have an aggressive portfolio in your early working years, a growth portfolio in your middle years, and a more conservative portfolio in your final years. The time it takes to double your accounts uses an average of these different asset allocation models rather than just one.
Past performance does not guarantee future performance
You would have received these returns over the past 94 years – but over shorter periods of time, the returns you get can vary quite a bit. When you’ve invested $ 10,000 Large-cap stocks on January 2, 2000, you would have had an average return of 1.59% and a final account balance of $ 11,300 over the next seven years. This is mainly because the decade started with 3 negative years of returns due to the bursting of the dot-com bubble. Conversely, if you had started investing in January 2010, you would have narrowly missed the Great Recession and seven years later had an average return of 13.89% and about $ 28,300 – more than double your original investment.
This shows that this rule is not an exact science and is subject to the whims of different market cycles. Therefore Time in the market is so important. The longer your money can stay invested, the better the chances that your investments will double.
Doubling your money may seem impossible or extremely difficult, but it is an attainable goal that you can achieve. And to get there, you don’t have to take any nasty risk or volatility. Just giving your accounts enough time to grow.