If you are planning on living off dividends only on a broad index, then you have nothing to worry about. 7% total return is fairly reasonable if it includes dividends and inflation. Most would say it is probably high if you are expecting real price appreciation of 7%.
So, if the interest rate is 6%, you would divide 72 by 6 to get 12. This means that the investment will take about 12 years to double with a 6% fixed annual interest rate.
To estimate the number of years it would take to double your money at a 7% annual rate of return, you can use the Rule of 72. Divide 72 by the annual rate of return: 72 ÷ 7 = 10.29. So, at a 7% return rate, it would take approximately 10.29 years to double your money.
One of those tools is known as the Rule 72. For example, let's say you have saved $50,000 and your 401(k) holdings historically has a rate of return of 8%. 72 divided by 8 equals 9 years until your investment is estimated to double to $100,000.
t = ln(100,000/5,000)/0.097 ≈ 12.35 years Using the formula for continuous compounding interest, it will take approximately 12.35 years for a $5,000 investment to grow to $100,000 at an interest rate of 9.7% compounded continuously.
Higher-risk investments like stocks have historically doubled money faster (around seven years) compared with lower-risk options like bonds (around 12 years). The rule provides an estimate, not a guarantee, since actual investment returns vary year to year.
What is the future value of $10,000 on deposit for 5 years at 6% simple interest? Hence the required future value is $13,000.
$3,000 X 12 months = $36,000 per year. $36,000 / 6% dividend yield = $600,000. On the other hand, if you're more risk-averse and prefer a portfolio yielding 2%, you'd need to invest $1.8 million to reach the $3,000 per month target: $3,000 X 12 months = $36,000 per year.
The formula for the Rule of 72
The interest rate shouldn't be expressed as a decimal out of 1, such as 0.07 for 7 percent. It should just be the number 7. So, for example, 72/7 is 10.3, or 10.3 years. The Rule of 72 is focused on compounding interest that compounds annually.
It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.
If you start with 1 dollar and double it every day for 30 days, you would have approximately $1,073,741,824. This shows the concept of exponential growth. Like the penny example, this is not typically possible in real-world investing scenarios.
Buy $4000 worth of goods at wholesale, resell them with a 150% markup. Pay your taxes. Done. Invest some of the money in tools and supplies and provide a service.
As the name implies, the Rule of 42 is an investing strategy that calls for you to include at least 42 different equities and other assets in your portfolio. You can have more if you want, but you should have no less than 42 — and only a small amount of money invested in each.
The precise amount you'll have after investing $1,000 monthly at 6%, a conservative number depending on what you choose to invest in, for 30 years is $1,010,538, as figured by SmartAsset's free online Investment Calculator.
Thus, it will take approximately 8.17 years.
Putting aside $40,000 in take-home pay every year—and earning that 10% return as described above—will get you to millionaire status in just under 15 years. Halve those savings and you're still only looking at just under 20 years.
A good return on investment is generally considered to be around 7% per year, based on the average historic return of the S&P 500 index, adjusted for inflation. The average return of the U.S. stock market is around 10% per year, adjusted for inflation, dating back to the late 1920s.
A quick and easier way to estimate the time it takes to double your money with compound interest is the Rule of 72. Simply divide 72 by your annual interest rate. In the case of a 7% yield, it would take approximately 10 years to double your money (72 / 8 = 10.3).
Return on Stocks: On average, a ROI of 7% after inflation is often considered good, based on the historical returns of the market. Return on Bonds: For bonds, a good ROI is typically around 4-6%.