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Doubling your money is an important milestone for any investor, and the time it takes to achieve this goal depends on the returns your investments generate. A 7% return in particular can be a powerful tool for growing your wealth over time. To determine how long it would take to double your money with a 7% return, we look at two scenarios: doubling your investment with compound returns and doubling your money without compound returns
Understanding the basics
A 7% return refers to the annual return on your investment that you are paid back in cash, expressed as a percentage of your initial investment. For example, if you invest $10,000 in a security that yields 7%, you can expect a return of $700 over the course of a year.
Compound returns refer to the process of reinvesting your earnings back into the investment, allowing your money to grow exponentially over time. Non-compounded returns, on the other hand, mean that you take your income out of the investment every year, resulting in linear growth of your money.
Doubling money with compound returns
Compound interest is a powerful concept that can help your money grow faster. The formula for compound interest is:
A = P(1+r)^n
Where A is the final amount, P is the initial principal, r is the annual interest rate, and n is the number of years.
A quick and easier way to estimate how much time it will take to double your money with compound interest is the rule of 72. Simply divide 72 by your annual percentage rate. At a 7% return, it would take about 10 years to double your money (72/8 = 10.3).
Let’s see how this works with a detailed example. If you invest $10,000 at an annual return of 8%, compounded annually, see how your money will grow:
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Year 1: $10,700.00
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Year 2: $11,449.00
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Year 3: $12,250.43
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Year 4: $13,107.96
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Year 5: $14,025.52
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Year 6: $15,007.30
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Year 7: $16,057.81
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Year 8: $17,181.86
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Year 9: $18,384.59
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Year 10: $19,671.51
By the end of the 10th year, your initial investment of $10,000 would have nearly doubled to $19,671.51. This exponential growth is the result of reinvesting your returns every year, allowing your money to grow over time.
This example shows how your investment would grow with an annual increase in return. If it were compounded on a quarterly or monthly basis, it would grow a little faster. That same €10,000 per quarter would be €20,015.97 after ten years and €20,096.61 if added monthly.
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Double money without doubling returns
Simple interest, on the other hand, means that you earn a fixed return on your initial investment each year without reinvesting your earnings. The formula for simple interest is:
A = P(1+rt)
Where A is the final amount, P is the initial principal, r is the annual interest rate, and t is the number of years.
If you invested $10,000 at a simple interest rate of 7%, your money would grow by $700 every year. To double your initial investment, it would take almost 14.3 years ($10,000 / $700 per year = 14.29 years).
Compared to the compound scenario, where it only took ten years to double your money, the simple interest scenario takes an additional four years to achieve the same goal.
The power of compound interest
The difference between compounded and non-compounded returns becomes even greater over longer periods. For example, if you invested $10,000 at a 7% return over 30 years, your money would grow to:
– $76,122.55 with compound interest
– $31,000 with simple interest
This stark contrast underlines the importance of reinvesting your returns. By putting your earnings back into your investment, you make your money work harder for you over time, resulting in significantly greater wealth accumulation.
Finding investments with an 8% return
To achieve the goal of doubling your money with an 8% return, it is crucial to choose the right investments. Let’s look at two possible options: a dividend stock and an alternative high-yield investment.
Dividend share
Finding a reliable high-yield dividend stock is one way to earn an 8% annual return. Many dividend stocks have a history of increasing their payout annually, meaning returns will continue to grow. Stocks also have the potential for price growth, which means they can deliver even greater returns over time. However, high-yield dividend stocks tend to have slower price growth because a large portion of their profits are paid out to shareholders instead of being used to grow the business.
An option worth considering is Enterprise Products Partners LP (NYSE:EPD), a leading company providing midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, petrochemicals and refined products. The company is known for its strong dividend yield and consistent payout history. With a dividend yield of 7.28% and 25 consecutive years of dividend growth, Enterprise Products Partners is worth considering.
The company’s annual dividend payout currently stands at $3.92 per share, with a payout ratio of 78.86%. While the tobacco industry faces a number of regulatory challenges, Altria’s strong brand portfolio and pricing power have allowed it to maintain its impressive dividend yield.
Alternative high-yield investments
Investors looking to diversify beyond traditional dividend stocks may find that the Ascent income fund from EquityMultiple offers an intriguing opportunity. This fund focuses on private credit investments and targets stable income from senior commercial real estate debt positions.
Historically, the Ascent Income Fund has delivered a distribution yield of 12.1%, significantly higher than the 8% benchmark we discussed. If the fund can maintain this level of performance, it can significantly shorten the time it takes to double your money. In reality it would only last about six years. In just 10 years you can more than triple your initial investment.
EquityMultiple’s strong track record and focus on capital preservation make the Ascent Income Fund an attractive option for investors seeking higher returns and potentially faster wealth accumulation. Click here for more information and to claim a new investor bonus.
It comes down to
The time it takes to double your money with a 7% return depends on whether your returns increase or not. With compound interest you can expect your money to double in about ten years, while with simple interest this would take more than fourteen years.
The power of compound interest lies in reinvesting your returns, allowing your money to grow exponentially over time. By choosing investments that offer high returns and the potential for compounding, such as high-quality dividend stocks or alternative investments like the Ascent Income Fund, you can accelerate your wealth-building journey.
Check out the list of more high-yield investment options for more information Benzinga’s Favorite High-Yield Investments and discover a range of carefully curated investment options across asset classes and risk profiles.
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This article How long does it take to double your investment with a 7% return? originally appeared on Benzinga.com
