How long does it take to double your money?
Ever wondered how long it would take for your money to double with a 7% return on investment? Initially, the numbers mightn’t look too impressive, but actually your money could double over about 10 years.
The graphic below shows you how long it takes to grow your money using the Rule of 72 shortcut. You can also use a more precise logarithmic formula in the download to see how long it takes to grow your money, depending on the rate of return.
Copyright © 2023 Visual Capitalist, All rights reserved. 16 Sept 2023
Why Knowing the Math is Important
Using the Rule of 72, investors can estimate the time it takes to double their money.
For example: at a 7% annual rate of return, dividing 72 by 7% gives you approximately 10 years for $10,000 to become $20,000, and
If you invest in the S&P 500, which historically has averaged an 11.5% return between 1928 and 2022, your money would double in approximately 6.4 years based on these average returns.
However,
If you put your money in a savings account with an average savings rate of 0.6% ( as , it would take another 120 years for your money to double, and
Considering inflation, keeping money in a savings account would actually cause it to lose value. Over the last century, inflation has averaged 3.3%.
Historical Asset Returns
Based on historical returns between 1928 and 2022, we can see that,
3-month treasury bills (low risk US debt securities that go for 4-52 weeks and are low risk, as they are backed by US government) tend to double approximately every 21 years.
Real estate assets had returns of 4.4%, doubling every 16 years between 1928 and 2022.
In comparison
Equities: $100 invested in the S&P 500, including reinvested dividends, would have grown to over $624,000.
So, how should I think about investments?
The data from NYU Stern shows that the S&P 500 has doubled about ten times since 1949 – demonstrating the power of :
long-term investing in both recessions and bull markets, and
compounding as an investment strategy which involves earning returns on both your original investment and on returns you received previously. For compounding to work, you need to reinvest your returns back into your account
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