How Long to Double Your Money?

This is an important question to be answered when we are doing our financial plan.

The duration required to double the money depends on the interest rate. The rule of 72 provides the answer to this.

The rule of 72 says that to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. For example, if you want to know how long it will take to double your money at nine percent interest, divide 9 into 72 and get 8 years.

If an investor choose a very safe vehicle, i.e. Fixed Deposit, he will require more years to double his money and vice versa.

Considering that large, blue-chip stocks have returned roughly 10% over the last 100 years and investment grade bonds have returned roughly 6%, a portfolio that is divided evenly between the two should return about 8%. Dividing that expected return (8%) into 72 gives a portfolio that should double every nine years.

Due to the risks, one would not want to expose himself to the same investment vehicle. Hence, an effective plan for choosing the right vehicles and diversify your assets across a variety of investment classes to help protect against market ups and downs.

Start setting money aside for the futureĀ­-one that will allow you to maintain your current lifestyle and is also consistent with your investment goals, risk tolerance and the amount of time you have to save.

Happy saving, happy investing!


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