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Doubling your money is a significant milestone for any investor, and the time it takes to achieve this goal depends on the rate of return your investments generate. A 7% yield, in particular, can be a powerful tool for growing your wealth over time. To determine how long it would take to double your money with a 7% yield, we’ll look at two scenarios – doubling your investment with compounding returns and doubling your money without compounding returns
Understanding the Basics
A 7% yield refers to the annual return on your investment paid back to you in cash, expressed as a percentage of your initial investment. For example, if you invest $10,000 in a security that yields 7%, you can expect to earn $700 in returns over the course of a year.
Compounding returns refer to the process of reinvesting your earnings back into the investment, allowing your money to grow exponentially over time. Non-compounding returns, on the other hand, involve taking your earnings out of the investment each year, resulting in a linear growth of your money.
Doubling Money with Compounding Returns
Compound interest is a powerful concept that allows your money to grow at an accelerating rate. The formula for compound interest is:
A = P(1+r)^n
Where A is the final amount, P is the initial principal, r is the annual interest rate, and n is the number of years.
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).
Let’s see how this works with a detailed example. If you invest $10,000 at an 8% annual yield, compounded yearly, here’s how your money will grow:
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Year 1: $10,700.00
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Year 2: $11,449.00
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Year 3: $12,250.43
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Year 4: $13,107.96
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Year 5: $14,025.52
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Year 6: $15,007.30
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Year 7: $16,057.81
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Year 8: $17,181.86
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Year 9: $18,384.59
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Year 10: $19,671.51
By the end of the 10th year, your initial $10,000 investment would have nearly doubled to $19,671.51. This exponential growth is the result of reinvesting your returns each year, allowing your money to compound over time.
This example shows how your investment would grow with returns compounded annually. If compounded quarterly or monthly, it would grow slightly faster. That same $10,000 compounded quarterly would be $20,015.97 after 10 years and $20,096.61 if compounded monthly.
Trending: If there was a new fund backed by Jeff Bezos offering a 7-9% target yield with monthly dividends, would you invest in it?
Doubling Money without Compounding Returns
Simple interest, on the other hand, involves earning a fixed rate of return on your initial investment each year, without reinvesting your earnings. The formula for simple interest is:
A = P(1+rt)
Where A is the final amount, P is the initial principal, r is the annual interest rate, and t is the number of years.
If you were to invest $10,000 at a 7% simple interest rate, your money would grow by $700 each year. To double your initial investment, it would take almost 14.3 years ($10,000 / $700 per year = 14.29 years).
Compared to the compounding scenario, where it took only 10 years to double your money, the simple interest scenario requires an additional four years to achieve the same goal.
The Power of Compound Interest
The difference between compounding and non-compounding returns becomes even more pronounced over longer periods. For example, if you were to invest $10,000 at a 7% yield for 30 years, your money would grow to:
– $76,122.55 with compound interest
– $31,000 with simple interest
This stark contrast highlights the importance of reinvesting your returns. By putting your earnings back into your investment, you allow your money to work harder for you over time, resulting in significantly greater wealth accumulation.
Finding Investments with an 8% Yield
To achieve the goal of doubling your money with an 8% yield, it’s crucial to choose the right investments. Let’s look at two potential options: a dividend stock and an alternative high-yield investment.
Dividend Stock
Finding a reliable high-yield dividend stock is one way to earn an 8% annual yield. Many dividend stocks have a history of increasing their payout each year, meaning the yield will continue to grow. Stocks also have the potential for price growth, providing even greater returns over time. However, high-yield dividend stocks tend to see slower price growth since a large portion of their earnings are paid out to shareholders instead of being used to grow the company.
One option worth considering is Enterprise Products Partners L.P. (NYSE:EPD), a well-established company that provides midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, petrochemicals, and refined products. The company is known for its strong dividend yield and consistent payout history. With a forward dividend yield of 7.28% and 25 consecutive years of dividend growth, Enterprise Products Partners is worth considering.
The company’s annual dividend payout is currently $3.92 per share, with a payout ratio of 78.86%. While the tobacco industry faces some regulatory challenges, Altria’s strong brand portfolio and pricing power have allowed it to maintain its impressive dividend track record.
Alternative High-Yield Investment
Investors seeking to diversify beyond traditional dividend stocks may find that the Ascent Income Fund from EquityMultiple offers an intriguing opportunity. This fund focuses on private credit investments, targeting stable income from senior commercial real estate debt positions.
Historically, the Ascent Income Fund has delivered a 12.1% distribution yield, significantly higher than the 8% benchmark we’ve been discussing. If the fund can maintain this level of performance, it could greatly reduce the time it takes to double your money. In fact, it would only take about six years. In just 10 years, you could more than triple your initial investment.
EquityMultiple’s strong track record and focus on capital preservation make the Ascent Income Fund an attractive option for investors seeking higher yields and potentially faster wealth accumulation. Click here to learn more and claim a first-time investor bonus.
The Bottom Line
The time it takes to double your money with a 7% yield depends on whether your returns are compounding or not. With compound interest, you could expect to double your money in approximately 10 years, while it would take over 14 years with simple interest.
The power of compound interest lies in reinvesting your returns, allowing your money to grow exponentially over time. By choosing investments that offer strong yields and the potential for compounding, such as high-quality dividend stocks or alternative investments like the Ascent Income Fund, you can accelerate your wealth-building journey.
To explore more high-yield investment opportunities, check out the list of Benzinga’s favorite high-yield investments and discover a range of carefully curated investment options across various asset classes and risk profiles.
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This article How Long Does It Take To Double Your Investment With A 7% Yield? originally appeared on Benzinga.com
