OK, let’s cut to the chase; everyone knows that the best way to make money on your money is to invest it, but we also all know that the stock market can yield a lot of different amounts of returns and that, whether professional or amateur, those future returns are never guaranteed.
With that in mind it’s best to invest money that you won’t need for at least a few years, if not for a few decades.
Simply put, when it comes to investing, time is definitely one of your best advocates. In fact, it’s pretty much the only way to guarantee that the money you invest will return high single digits or low double-digit returns. Also, when you think about it, if you are going to invest money you should consider investing it for at least 10 if not 20 or 30 years. The only reason to not do that is for the money you have an emergency fund and, even with that money, you can put it in a short-term investment that carries little or no penalties for early withdrawal (in case of emergency).
Another fact is that letting your money sit in a savings account is absolutely the worst choice to make, especially when most are delivering less than 1% interest while inflation is rising at about 2% per year. In other words, putting your money into a savings account is basically losing money because it won’t have the same buying power next year as it does right now.
Many people use the “rule of 72” to figure out how long will it take to double their money, and it’s actually a great rule and a great way to do it. Here’s how it works; take the annual rate of return that you expect and divide it by 72. That will give you a rough estimate of how long it will be before your initial investment is 100% higher.
A good example of this is that if you invest one dollar at 10%, it will take approximately 7.2 years for the one dollar to turn into two dollars. (72÷10 = 7 .2) the same math tell you that $10,000 will take just over seven years to turn into $20,000.
Take that same $10,000 and let it sit in a savings account with a 1% interest rate per year (which is quite generous actually) and it would take 72 years to turn into $20,000! If you have an extra 60 years to wait, this would be a great choice. If not, it definitely isn’t. (And yes, were being facetious.)
In the long run, 7% is about average for stock market returns, meaning that it might take slightly longer or slightly less than 10 years to double your money, but the Rule of 72 definitely shows that investing your money is much better than putting it into a savings account, and the best way to double it.