This article is part of our guide on how to invest 1 million dollars for income, available here.
New investors need to conceptually digest how compound interest works and the power of compounding growth before making their first investment. You don’t need to hit a home run on every investment, nor should you expect one, and if you’ve be advise that by someone, you need to exit stage left!
The truth is forecasting what your double-up timeline is for every investment dollar you put to work should be your focus. In this article, we’ll discuss what simple interest rate will double your money in 5 years and answer other questions about things like the rule of 72.
What Interest Rate will Double Your Money in 5 Years?
If you wanted to double your money every 5 years, you would need to generate an annual rate of return of 14.4%.
(72 / 5 Years = 14.4% Annual Rate of Return)
Using the Rule of 72
The rule of 72 is a great formula to keep in mind when trying to understand how long it will take to double your money.
Here’s how you run the calculation:
(72 / 10% Rate of Return = 7.2 Years)
That means that if you earned a 10% rate of return over 7.2 years, you would be able to double your money.
Who came up with the Rule of 72?
It is a rule that dates back to 1494 when Pacilio referenced it in his comprehensive math book “Summa Arithmetica”. Pacioli has given explanations for the reasons for which rules can be effective, Hence, some people think that the rules predate Pacioli’s novel.
Investing How Long to Double Money?
How long it takes to double your money depends on various factors like economic cycles, the underline instrument’s certainty, operating and managing the investment’s performance, the industry, and many other variables. For a more certain investment instrument like commercial real estate, a 5 to 7-year hold is a solid target timeline to double your money.
Next, let’s dive more into where you can generate these kinds of 5 to 7-year horizon return targets.
Where can you Generate these types of Returns?
These types of returns can be generated across many investment instruments, some with low risk, some with moderate risk, and some with high risk. As you can see, all of these investments are not created equal, and the certainty of preserving your principal investment while also growing that principle changes depending on that risk.
CRE (Commercial real estate) has some of the best risk-adjusted returns, especially when you compare it to the stock market since the year 2000. Did you know that, on average, investing $100,000 in the year 2000 would be worth around $560,000 in 2022? While the same $100,000 in stocks would be worth $320,000 in 2022!
Not to mention that CRE has significant tax advantages that allow you to further tax shelter your dividends, further enabling you to increase your overall returns and get you closer to that desired double-up.
With that being said, here are some of the safest risk-adjusted CRE assets that you can invest into:
- Multifamily Real Estate: Is the most robust risk-adjusted asset class among CRE. These assets perform the best and have performed before, during, and after the COVID-19 pandemic. There continues to be a housing shortage, further driving up rents and keeping apartment vacancies at all-time lows, as the cost to build is just too expensive to make sense of for most builders.
- Grocery-Anchored Retail Real Estate: Retail has weakened in many sectors of the economy due to the digitization of the economy and the rise in e-commerce. That being said, retail with large grocery stores as the “anchor tenant” to drive traffic to the plaza continues to perform well.
- Industrial Real Estate: With the rise of e-commerce, industrial real estate has seen a greater demand to help with that increased need for production.
Frequently Asked Questions About What Interest Rate Would Double Your Money in 5 Years
It would take 12 years to double your money with an annual interest rate of 6%. You would calculate the following way (72/6= 12).
A good rate of return on investment over 5 years largely depends on the type of investment instrument and the risk associated with the initial investment. But as a general rule in real estate investing, a 100% ROI is a solid investment.
What Interest Rate Will Double Your Money in 5 Years - Conclusion
A 14.4% year-over-year interest rate on your cash over 5 years is challenging to achieve on a cash-on-cash basis. However, when including appreciation and asset growth into that equation, a double-up or 14.4% year over year over 5 years is definitely attainable. Achieving these kinds of returns allows you to increase your purchasing power for the second cycle of re-investing those dollars.
If you’re interested in getting access to private value-add multifamily investment opportunities across the southeastern united states, join the investors club here at Willowdale Equity.
- Livemint.com, “Know when your money will get doubled – the rule of 72“
- Marcus & Millichap, “Commercial Real Estate vs S&P 500“
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