The investment can add an extra zero (or two) to your net worth. It’s not a quick process, but it can be easy, even if you have no investment experience. Continue reading to find out how to do this.
The doubling rule is a simple formula that estimates how long it takes to double your money on an investment. To use the formula, divide 72 by the estimated growth rate. The answer is to double the time in years.
You can use this formula for any appraised asset — including your cash savings and government bonds. For those assets, you usually have a set growth rate. Unfortunately, stocks are unpredictable. The good news is that if you plan to invest in stocks for the long term, you can use Average historical performance of the stock market as the estimated growth rate.
The long-term warning is important. The Stock market It rises and falls from year to year, so it is often impossible to predict short-term growth rates accurately. But over 10 years or more, those fluctuations on average take place with more consistency. Historically, long-term market growth has been around 7% annually, net of inflation.
Back to the doubling rule: money invested at 7% will double every 10 years and three months.
From $10,000 to $100,000
Apply the compounding rule to a hypothetical stock market investment of $10,000, the expected balances over time are:
- $20,000 after 10 years and 3 months
- $40,000 after 20 years and six months
- $80,000 after 30 years and nine months
- $160,000 after 41 years
With this timeline, you can turn your $10,000 investment into $100,000 in about 35 years.
What stocks to buy
The actual investment growth rate will depend on the stocks you are buying. Some can double the initial investment faster, while others can – for example, Feast – You can dispose of your fortune immediately. Faster growth is clearly the best outcome, but big gains always come with the potential for big losses.
That’s why it’s smart to take a moderate approach. You can do this with a file Standard & Poor’s 500 Exchange Traded Funds (ETF). This is a type of fund that includes 500 of the largest and most well-established companies in the United States. These companies as a whole have such a big influence that S&P 500 . Index It is often used as a benchmark for the stock market in general. The index is also in line with the target growth rate of 7%.
From $10,000 to $1,000,000
What if you wanted to turn $10,000 into $1 million instead of $100,000? Long-term investment can also support this goal. To achieve this, you must invest your initial $10,000. Then you add $550 per month to that investment. Stay with this plan and you should cross the $100,000 mark in about 10 years. Keep going, you will probably do it Reach millionaire status After 35 years.
You can also go with this plan for as little as $550 per month. Adding a monthly investment of any size will significantly speed up your results. The compounding rule is not complicated enough to plan monthly investment schedules, but you can use the compound interest calculator like this.
Try it to estimate the potential wealth of your investment budget over the next 10, 20 or 30 years.
Invest in the long term for more predictable results
It takes a long-term commitment to building wealth in the stock market. Plan a timeline of at least 10 years. Go ahead by investing in a diversified portfolio of well-established and successful companies – such as the S&P 500 ETF. You can always branch out as you gain confidence Investment selectionbut you don’t have to.
If given enough time, your investment in the stock market can grow from $10,000 to $100,000 or more. Start now so you can reach these milestones of wealth sooner rather than later.