- 1 how long to double money in stock market
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- 1.4 How To Double Your Money Every 6 Years
- 1.5 How long will it take to make money in the stock market?
- 1.6 How Long Will It Take To Double Your Money? – Heres How To Calculate It
- 1.7 A financial planner explains a simple way to calculate how long it will take to double your money
how long to double money in stock market
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How To Double Your Money Every 6 Years
"Double your money, fast!" Do those words sound like the tagline of a get-rich-quick scam? If you want to analyze offers like these or establish investment goals for your portfolio, there's a quick-and-dirty method that will show you how long it will really take you to double your money. It's called the rule of 72, and it can be applied to any type of investment. (For more ideas on how you can double your money, check out 5 Ways To Double Your Investment.)
Depressing, right? CDs are great for safety and liquidity, but let's look at a more uplifting example: stocks. It's impossible to actually know in advance what will happen to stock prices. We know that past performance does not guarantee future returns. But by examining historical data, we can make an educated guess. According to Standard and Poor's, the average annualized return of the S&P 500 from 1926 to 2010 was 12.01%. At 12%, you could double your initial investment every six years (72 divided by 12). In a less-risky investment such as bonds, which Standard and Poor's says have averaged about 6% over the same time period, you could expect to double your money in about 12 years (72 divided by 6).
Keep in mind that we're talking about annualized returns, or long-term averages. In any given year, stocks will probably not return 12% - they might return 25% or lose 30%. It's over a long period of time that the returns will average out to 12%. The rule of 72 doesn't mean that you'll definitely be able to take your money out of the stock market in six years. You might have actually doubled your money by then, but the market could be down and you might have to leave your money in for several more years until things turn around. If you must achieve a certain goal and be able to withdraw your money by a certain time, you'll have to plan carefully, choose your investments wisely and keep an eye on your portfolio. (To help you invest in the long term, see 10 Tips For The Successful Long-Term Investor.)
Achieving Your Investing Goals
Let's say you have a newborn baby girl. Congratulations! You now have 18 years to come up with enough money for her college tuition. How much will you need?
First of all, you can use the rule of 72 to determine how much college might cost in 18 years if tuition increases by, let's say, 4% per year. Divide 72 by 4% and you know that college costs are going to double every 18 years. You have high hopes that little Madison will attend Harvard. Harvard's undergraduate tuition and fees for the 2011–2012 academic year are $52,650. For the last two years, Harvard has increased tuition and fees by 3.8% per year. This means tuition and fees, if Madison were entering college today, would likely cost $52,650 for freshman year, $54,650 for sophomore year, $56,727 for junior year, and $58,883 for senior year. Total bill: $222,910. Double that, since you calculated that the cost of college will double in 18 years, and you get $445,820.
Right now you have $1,000 to invest and with an 18-year time horizon, you want to put it all in stocks. We saw in the previous section that investing in the S&P 500 has historically allowed investors to double their money about every six years. Your initial $1,000 investment will grow to $2,000 by year 6, $4,000 by year 12, and $8,000 by year 18. Clearly you'll have to find a way to finagle contributions from the grandparents or let little Madison know that she's on her own when it comes to paying for college. Eighteen years isn't as long of a time horizon as you thought!
How much would you have to invest today to get $450,000 in 18 years at 12% per year? To figure this out, just work backwards, halving your money every six years. You'd need to have $225,000 by year 12, $112,500 by year 6, and $56,250 by … yesterday. (For help in achieving your investment goals, check out 4 Steps To Building A Profitable Portfolio.)
Shortcomings of the Rule Of 72
The rule of 72 isn't perfect. First of all, it does not take into account the effect of investment fees, such as management fees and trading commissions, on your returns. Nor does it account for the losses you'll incur from any taxes you have to pay on your investment gains.
Second, it's a rough guideline. To get a more precise outcome, you'll need to understand algebra and use the future value formula. But if you don't mind having your calculations be off by somewhere between a few months and a year, the rule of 72 will fill your needs. (To determine the best strategy for you to achieve the returns your need for the future, read Long-Term Investing: Hot Or Not?)
How long will it take to make money in the stock market?
How long will it take to make money in the stock market?
How long will it take to make money in the stock market? Does it take a while? How many shares do I have to buy.
1) LEARN- Read books from the library and forums on the internet. all this will give you information on how to trade, what to trade, how to analyse, how to emotionally handle the sharemarket, ect.
A great book to read is the "share trading" "for dummies". i found this great when learning how everything works.
EDIT: So sorry, just realised your from the USA, and thought this question was from Australia. Hopefully though some of the information is still relevent.
How Long Will It Take To Double Your Money? – Heres How To Calculate It
by Begin To Invest on September 12, 2013
Here’s two ways to calculate how long it will take to double your money based on a certain annual percentage return. The first is a quick, rough calculation you can do in your head. The second “real” calculation requires a calculator or spreadsheet.
The first is the “rule of 72” – a simple rule of thumb to help you determine how fast your investments will double in value at certain rates of return.
Simply divide 72 by the presumed growth rate to get a rough idea on how long it will take for your money to double.
For example, an investment growing at 7.2% a year would double in 10 years.
At 8% growth, it would take 9 years to double your investment.
However, this “rule of thumb” is not 100% correct. It may make it easier to figure out in your head, but is not exactly accurate.
So if you want to be 100% exact, here’s how you do it in excel:
Where ln is natural log and rate is the percent in decimal form (so 1% would be 0.01, 2% is 0.02 etc).
So, at 8% it would take your investment:
Or 9.01 Years to double in value.
So our “rule of 72” was pretty much right on here. However as percentages get small or large, the quick thumb rule does not yield as accurate of a result.
How different of a result do these two ways of calculating how long it will take to double your money give? Consider the table below:
A financial planner explains a simple way to calculate how long it will take to double your money
Want to double your money? It pays to understand the math. Shaun Heasley / Getty Images How long does it take to double your money?
You likely can have twice as much wealth in 10 years, if you invest it in stocks, or 72 years if it goes into a savings account.
It pays to understand the math.
Everyone says you should invest because you'll grow your money, but let's back up a second and look at how it really works.
Stocks are one of many possible ways to invest your money.
While the future is never guaranteed, history suggests that they have high potential returns.
The long-term average return of the Standard and Poor's 500 Index is about 10% per year from 1928 to 2014.
Warren Buffett several years ago, in the aftermath of the financial crisis, said that investors should expect a return of 6% to 7% a year.
Keep in mind that these are long-term averages.
The market can go down in one year, and you have to wait a couple of years for things to turn around. That's why it's best to invest money that you most likely don't need for several years.
The likelihood of achieving high single- to double-digit annual percentage returns is why people invest in the stock market for their retirement. Beyond your emergency fund, why would you put money that you don't plan on touching for 10, 20 or 30 years into savings accounts that can't even keep up with inflation?
According to Bankrate, today's average money market rate in America is 0.09%. With inflation rising at approximately 2% year over year, socking away your retirement money into a savings account means you're actually losing money. (What's even crazier, there are new ways of saving that earn no interest at all, such as this new app called Digit.)
Warren Buffet says that investors should expect an annual return of 6% to 7%. Bill Pugliano/Getty Clearly, it's better to invest than just letting your money sit in your savings account. If hearing 7% doesn't get you excited, the prospect of doubling your money might.
The "rule of 72" is a simplified way to calculate how long an investment takes to double, given a fixed annual rate of interest.
You divide 72 by the annual rate of return you receive on your investments, and that number is a rough estimate of years it takes to double your money.
For example, $1 invested at 10% takes 7.2 years (72 divided by 10) to turn into $2.
Now, apply this formula to Warren Buffett's number. If you invested $10,000 at 7%, it takes about 10 years to turn into $20,000. What if you have your $10,000 in a savings account that (let's be generous) yields 1% a year? It takes you 72 years. That's a 60-year difference from investing in stocks.
The rule of 72 is just math, but it's an extremely helpful rule of thumb to put the marathon of investing into perspective. Think through what you use your savings for, and make sure you use them in a way that allows your money to reach its full potential.
Wes Moss, CFP, is the chief investment strategist for Capital Investment Advisors and a partner at Wela, both in Atlanta. He hosts "Money Matters," a live financial advice show on Atlanta's News 95-5 and AM 750 WSB Radio. In 2014 Barron's Magazine named him as one of America's top 1,200 Financial Advisors. His newly released book, "You Can Retire Sooner Than You Think" published by McGraw Hill, is available on Amazon, iTunes and at your local bookstore.
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.