Finance

How long does it take to double your money on an investment with an 8% return?

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1 week ago

June 14, 2024

How long does it take to double your money on an investment with an 8% return?

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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. An 8% 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 an 8% return, we look at two scenarios: doubling your investment with compound returns and doubling your money without compound returns

Understanding the basics

An 8% 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 8%, you can expect a return of $800 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 an 8% return, it would take about nine years to double your money (72/8 = 9).

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:

Year 1: $10,800
Year 2: $11,664
Year 3: $12,597
Year 4: $13,605
Year 5: $14,693
Year 6: $15,869
Year 7: $17,138
Year 8: $18,509
Year 9: $19,990

Source: Compound Interest Calculator on Investor.gov

By the end of the ninth year, your initial investment of $10,000 would have nearly doubled to $19,990. 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 quarterly would be $20,398.87 after nine years and $20,495.30 if compounded 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 8%, your money would grow by $800 every year. To double your initial investment it would take 12.5 years ($10,000 / $800 per year = 12.5 years).

Compared to the compound scenario, where it only took nine years to double your money, the simple interest scenario takes another 3.5 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 an 8% return over 30 years, your money would grow to:

– $100,627 with compound interest

– $34,000 with simple interest

This stark contrast underlines the importance of reinvesting your returns. By putting your earnings back into your investment, you ensure that your money can 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 Altria Group, Inc. (NYSE:MO), a well-established company in the tobacco industry known for its strong dividend yield and consistent payout history. With a dividend yield of 8.57% and 54 consecutive years of dividend growth, Altria is an attractive option for income-oriented investors.

The company’s annual dividend payout currently stands at $3.92 per share, with a payout ratio of 78.86%. Although the tobacco industry faces a number of regulatory challenges, Altria’s strong brand portfolio and pricing power have enabled 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 take 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 to learn more and claim a new investor bonus.

It comes down to

The time it takes to double your money with an 8% return depends on whether your returns increase or not. With compound interest you can expect to double your money in about 9 years, while with simple interest it would take 12.5 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.