How long will it take to double your money?

Warren Buffett, the Oracle of Omaha, says that investors should expect a return of 6 to 7% in the aftermath of the financial crisis. (If you don’t know who Warren Buffett is, you should ask your financial advisor.)

My clients know that I recommend broad-based stock and bond index funds, specifically Vanguard’s Total Stock Market Index Fund and Vanguard’s Total Bond Market Index Fund. They have a very low cost ratio and this way all your money can work for you, instead of a money manager.

Although no one knows what the markets will do in the future (if anyone says they do, run from them as quickly as possible), I am estimating a 7% return for the stock index fund I recommend and a 2% return for the bond index fund I recommend. Your projected return would then depend on how much you put in each fund, which is affected by your age and tolerance for risk.

You subtract your age decade (i.e. if you are 46 years of age, use 40 until you reach 50 years of age, then use 50) from 120, 110, or 100 to get the percent you should put in the stock fund. You subtract from 120 if you’re feeling aggressive (even though using these funds is the most conservative way to put your principal at risk), you use 100 if you’re feeling conservative, and 110 if you’re in between. Subtract that result from 100% and that’s the percent you put in the bond fund.

Once you’ve done this, you multiply your stock percentage times 7% and your bond percentage by 2%. Add them together and this represents your expected rate of return.

Divide 72 by your expected rate of return and the answer is the number of years it will take for your money to double.

If you invest your money differently, then divide 72 by your expected rate of return to get your answer.

This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, and/or investment advisor before making any investment, tax, estate, and/or financial planning decisions.

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