Monday 10 May 2021

How To Double Your Money

I'm guessing that most people would like to double their money. It's a pretty simple goal, yet it seems so unlikely.

But once you start thinking about it - it's just about numbers, and time. There is no real magic about it apart from consistent (but not necessarily spectacular) performance from your investments.
Think about it this way: if you can make an annual return of just 5% - not overly ambitious - and make it consistently over time - what would happen to your money? This involves a little maths and the magic of compounding and what I call the Money Snowball. Here's how:
  • Year 0: £100
  • Year 1: £100 + 5
  • Year 2: £105 + 5.25
  • Year 3: £110.25 + 5.5126
  • etc.
Now, this may seem slow to start off but after a couple of years it really takes off. 

A quick way to work out when you would reach your goal of doubling your money is to use the Rule of 72. - divide 72 by the annual percentage increase. In this case the answer is 14.4

So, investing at an annual yield of 5% would double your money in 15 years.

The yield on the DIY Income Investor portfolio has slipped a little in the last year and is now around 4.7% - but in previous years it was greater than 5%. 

Here's the interesting point - I've realised that I have been writing this blog for 10 years (and investing for a while longer). So it turns out that I am well on the way to doubling my money automatically, while I was concentrating on all the other stuff of buying and selling. Having said that, reality is a bit more complicated - there are capital gains and losses to take account of, and you can't ignore inflation. But the basic idea stands - consistent, modest returns are the foundation of your wealth creation.

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

No comments:

Post a Comment