The chance to double your money certainly sounds tempting. In fact, if I close my eyes I can hear a carnival barker shouting it across the fairgrounds, attracting people anxious to get rich. It sounds awfully nice, just like the thought of winning the lottery or hitting it big at the casino. But is it actually possible?
Well yes, it is, but the important question is: How long will it take?
In the world of finance, the Rule of 72 is used to determine how long it will take you to double your money. Just remember this is more of a loose guideline than a hard and fast rule, but accountants have been using it for years. Here’s how it works:
Take the number 72 and divide it by the interest rate you can earn on your money. This will give you the number of years it will take to double it. For example:
$1000 at 9% APY is 72/9 = 8 years to have $2000.
The lower the interest rate, the longer it will take you:
$1000 at 5% APY is 72/5 = 14.4 years to have $2000.
There’s a caveat though: the Rule of 72 really works best with interest rates between 6 - 10%. Since these days it’s hard to find a savings vehicle that pays that kind of interest (most pay less than 1%), the Rule of 72 isn’t always a good guideline to use. It’s best seen as a starting point to help you determine the right mix of saving and investment accounts to have.
Of course you can find other ways to double your money - some more legitimate than others. The saying “If it sounds to good to be true, it probably is,” definitely applies here. Generally speaking, it’s best to do it slowly. For instance, you can invest in a solid, speculative stocks and bonds portfolio, where your money can grow gradually over time. By trying to double your money too quickly, you might be assuming a lot of risk, which could be disastrous for you financially. Of course it could pay off, but the chances are pretty slim. Putting a wad of cash on black at a casino roulette wheel probably isn’t a very good idea either (though if you win, you’ve doubled your money very quickly).
Don’t turn down free money!
The safest and easiest way to double your money these days is to opt in to your company’s retirement plan. If they offer a matching plan through a 401(k), you can set aside part of your paycheck, before taxes, and your company will match it. How much your company will match is variable, so be sure to ask what the current percentage is.
For example, if you take $0.75 from your paycheck, you might have $1.50 invested into your retirement account because of your company’s matching funds. Check to see if your employer offers this kind of plan and if they do, sign up as soon as you can.
Get free advice
Hanscom Investment Services offers unbiased, professional investment advice. You can talk to an investment advisor any time, for free, about the best ways to invest your money. They will sit with you to learn about your current situation and your financial goals, and give you guidance that’s best suited for your individual needs. Nothing could make them happier than to see you double your money! Click here to contact one of our trusted advisors.†
Making saving money a habit
Begin by automating your savings. Have the amount of money you decide to save each payday taken directly from your check. Begin with as little as $5 a month and see how it can grow! The most important aspect of growing your savings is to start! Use America Saves Week to take the savings pledge and get some momentum going! Set a goal for yourself today.
†Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Hanscom Federal Credit Union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Hanscom Investment Services, and may also be employees of Hanscom Federal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, Hanscom Federal Credit Union. Securities and insurance offered through LPL or its affiliates are:
Not Insured by NCUA or Any Other Government Agency / Not Hanscom Federal Credit Union Guaranteed / Not Hanscom Federal Credit Union Deposits or Obligations / May Lose Value