The secret to doubling your money is really no secret at all. To double your money, all you need is TIME!
How much time is needed to double your money?
There’s a simple formula we can use called the “Rule of 72”. Simply take the number 72, and divide it by your expected annual rate of return.
72 ÷ (annual rate of return) = (number of years to double your money)
As an example, let’s assume a 7.2% annual rate of return.
72 ÷ 7.2 = 10 years
In this case, with a 7.2% annual rate of return, money will double every 10 years.
Now, let’s look at another example of $250,000 invested with a 7.2% return, with no additional savings.
Today - $250K
In 10 years - $500K
In 20 years - $1M
In 30 years - $2M
With the investment doubling every 10 years, $250,000 becomes $2,000,000 after 30 years (assuming no additional savings).
Let’s look at that example again, but assuming a savings rate of $25,000 per year ($250,000 every 10 years).
Today - $250K
In 10 years - $500K + $250K (savings) = $750,000
In 20 years - $1.5M + $250K (savings) = $1.75M
In 30 years - $3.5M + $250K (savings) = $3.75M
Wow, that’s a great nest egg! But wait… we forgot about inflation.
To keep our math simple, let’s assume an inflation rate of 2.4% (which falls between the Bank of Canada’s target inflation rate of 1-3%). If we apply this to the “Rule of 72” (72 ÷ 2.4 = 30 years), this would mean that in 30 years the cost of your goods and services will also have doubled.
In our example above, at age 70, the $3.75M would carry the purchasing power of $1.88M in today’s dollars – not bad at all.
It is important to note that the “Rule of 72” examples above carry many assumptions. A comprehensive financial plan that incorporates tax minimization strategies, investment management, retirement planning, and estate planning is certainly more powerful and precise, and therefore highly recommended.
However, the “Rule of 72” can be particularly helpful with decisions on spending vs. investing, such as deciding whether or not to spend an extra $10K to get a model vehicle vs. investing it to have $80K in 30 years.
Now you know the secret on how to double your money. Spread the word!
* Rates are shown for illustration purposes only and are not a guarantee.