How Long Will It Take to Double Your Money with an 8% Investment Yield?

Investing is a crucial aspect of growing your wealth and achieving financial goals. One common milestone for investors is doubling their money, but how long this takes depends on the rate of return your investments generate. An 8% yield can be a powerful tool for accelerating wealth growth over time. To understand how long it would take to double your money with an 8% yield, we’ll explore two scenarios – doubling your investment with compounding returns and doubling your money without compounding returns.

Understanding the Basics

An 8% yield represents the annual return on your investment paid back to you in cash, expressed as a percentage of your initial investment. For instance, investing $10,000 in a security that yields 8% would yield $800 in returns over a year.

Compounding returns involve reinvesting your earnings back into the investment, allowing your money to grow exponentially over time. On the other hand, non-compounding returns entail taking your earnings out of the investment annually, resulting in a linear growth of your money.

Doubling Money with Compounding Returns

Compound interest is a powerful concept that enables your money to grow at an accelerating pace. The Rule of 72 offers a simple way to estimate the time it takes to double your money with compound interest – just divide 72 by your annual interest rate. With an 8% yield, it would take approximately nine years to double your money.

Let’s consider an example: If you invest $10,000 at an 8% annual yield, compounded yearly, your money will grow as follows:

Year 1: $10,800

Year 2: $11,664
Year 3: $12,597
Year 4: $13,605

Year 5: $14,693
Year 6: $15,869
Year 7: $17,138

Year 8: $18,509
Year 9: $19,990

By the ninth year, your initial $10,000 investment would nearly double to $19,990. This growth is a result of reinvesting your returns each year, allowing your investment to compound over time. If compounded quarterly or monthly, your investment would grow even faster.

Doubling Money without Compounding Returns

In contrast, simple interest involves earning a fixed rate of return on your initial investment each year, without reinvesting your earnings. If you were to invest $10,000 at an 8% simple interest rate, it would take 12.5 years to double your initial investment. This is 3.5 years longer than compounding returns would take to achieve the same goal.

The Power of Compound Interest

Over extended periods, the difference between compounding and non-compounding returns becomes significant. For example, if you were to invest $10,000 at an 8% yield for 30 years:

Compound interest would grow to $100,627

Simple interest would only reach $34,000

This contrast emphasizes the importance of reinvesting your returns. By allowing your money to compound over time, you enable it to work harder for you, resulting in substantial wealth accumulation.

Finding Investments with an 8% Yield

Selecting the right investments is crucial to achieving your goal of doubling your money with an 8% yield. Two potential options include dividend stocks and alternative high-yield investments.

Dividend Stock

Investing in a high-yield dividend stock can provide an 8% annual yield. Consider companies like Altria Group, Inc. (NYSE:MO), known for its strong dividend yield and consistent payouts. Altria offers a forward dividend yield of 8.57% and a history of dividend growth, making it an appealing option for income-focused investors.

Alternative High-Yield Investment

The Ascent Income Fund from EquityMultiple focuses on private credit investments, offering a historical distribution yield of 12.1%. This fund has the potential to reduce the time it takes to double your money significantly. In just six years, you could see substantial returns, making it an attractive option for investors seeking higher yields.

In Conclusion

The journey to doubling your money with an 8% yield depends on whether your returns are compounding or not. Compound interest allows for faster growth, while non-compounding returns take longer to achieve the same goal. By choosing investments that offer strong yields and the potential for compounding, such as dividend stocks or high-yield funds like the Ascent Income Fund, you can accelerate your wealth-building journey.

For more high-yield investment opportunities across various asset classes and risk profiles, explore Benzinga’s curated list of favorite high-yield investments. Remember, investing wisely and leveraging the power of compound interest can help you achieve your financial goals faster and more effectively.