Have you ever wondered how you could double your money? Ask around and you will receive a plethora of suggestions – chances are you’ll hear a lot about gambling and winning the lottery! But what about investing? Could you double your money by putting your well-earned cash in the stock markets?
How long does it take to double your money?
Before you start investing to try and double your money, it’s important to understand your timeframe. In the investment world, we use the Rule of 72 to have a rough idea of how long it will take you to double your money, assuming a fixed annual rate of return and no additional contribution – needless to say, this rule isn’t exact science, but it is an easy way to have an estimate of your timeframe. All you need to do is divide 72 by your expected annual rate of return – that’s how much in percentage you’re expecting to earn on your investment per year.
Let’s take an example to make it easier to understand. Between 1983 and 2020, the FTSE 100 returned about 7.2% a year (with reinvested dividends)1. Based on this performance, you could expect your investment to double every 11.6 years. The higher the rate of return, the shorter the amount of time it will take to double your investment. Here’s a table listing different timeframes based on other rates of return:
Although the Rule of 72 is very easy to use, it’s not designed to give you an exact timeframe. It requires a fixed rate of return and since returns aren’t guaranteed with investing, it’s quite hard to determine your annual growth rate – obviously, you can use the average stock market return, but remember, past performance is not a reliable indicator of future results. So, if anything, the Rule of 72 will only give you an estimate of how long you’ll need to wait before your money doubles.
Why investing could help you double your money
Now that you have a rough idea of how long it will take you to double your cash, it’s time to see how investing can help boost your money. If you invest and buy shares, you may receive dividends – these are payments made by companies to their shareholders. Now if you re-invest these gains, you could benefit from the power of compounding – where your profits generate further profits. Over time, your money could snowball and your pot could grow exponentially bigger. The compounding magic tends to be more powerful when you invest frequently and over a number of years.
Say you invest £50 a month in a Wealthify Confident Plan where your profits are re-invested. After 34 years, you could end up with £41,376, which would be a gain of £20,976 on your £20,400 investment2! It’s possible to double your money in less than 34 years, but this could depend on the level of risk you choose to take.
Another way to double your money a bit faster is to put it in a personal pension. For every contribution you make, you’ll get a 25% tax relief top-up on your money, which could definitely boost your wealth. Please note that every year, you’ll only receive the top-up on the first £40,000 you put in (or the totality of your earnings, whichever is lower) – this is your pension annual allowance, and it includes contributions made by you and the tax-relief paid by the government.
Things to consider before investing
Investing can be a great way to double your money, but before you embark on your adventure, it’s important to consider a few things.
Consider your risk appetite
If you want to invest, you may want to consider your attitude to risk. How much risk are you comfortable taking? Are you more Adventurous or Cautious? There’s no right or wrong answer here, it all depends on your preferences and financial situation, including how much you can afford to lose. Once you know where you stand on the risk spectrum, you can start choosing your investments. Make sure you do some research before doing the picking and understand the risk attached to each investment type, whether it’s bonds, shares, or property.
Regardless of your risk appetite, it’s always a good idea to try and mitigate your risk. One thing you could do is diversify your portfolio – by this we mean spreading your money across different investment types and regions, that way any poorly performing investments can be offset by investments that are doing well.
Think about the long-term
If you want to make money through investing, it’s important to understand that it’s not going to happen overnight. So, if you want to double your money, you’ll need to be patient. In fact, according to many studies, the more you wait, the better, as your money will have more time to grow and compound. If you don’t believe us, look at the following examples.
Say you put £1,000 in a Stocks and Shares ISA and decide to hold onto your investment for a number of years. After 15 years, you could end up with a gain of £6543. Let’s see what an extra five years could mean for your investment. After 20 years, your pot could be worth £2,002 – that’s an extra £350 earned in five years and a doubling your initial £1,000 in 20 years! 4.
Get help if you need to
Investing can seem daunting, especially if you’re just getting started. But there are many digital investment platforms out there that are designed to make it easy for you. With Wealthify, you don’t need to know much about stock markets to take the plunge. You don’t even need that much money – start investing from £1, we will build you a diversified portfolio based on your risk level. We will manage your Plan and ensure everything is on track with your financial goals, whatever they are.
Reference:
1: Data from Bloomberg
2: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £27,568. If markets perform better, your return could be £66,085. Values correct as of 24/03/2021
3: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £1,094. If markets perform better, your return could be £2,470. Values correct as of 25/03/2021
4: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £1,220. If markets perform better, your return could be £3,223. Values correct as of 25/03/2021
Past performance is not a reliable indicator of future results.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
