Doubling Your Money

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rrouse
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Doubling Your Money

Post by rrouse » Sun May 13, 2018 10:58 am

What is a reasonable expectation or rule of thumb for doubling (in real terms) your stock market holdings, assuming you reinvest dividends?

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Re: Doubling Your Money

Post by abuss368 » Sun May 13, 2018 11:01 am

I am unsure of any predictive model that works or that you would want to rely on to base financial decisions.

I would simply focus on establishing goals, developing an asset allocation, selecting low cost investments, and stay the course.

Over time this will work best for you and your family.
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Boglegrappler
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Re: Doubling Your Money

Post by Boglegrappler » Sun May 13, 2018 11:09 am

Not really directly responsive to your question, but I've always liked the "rule of 72" rule.

Basically you can take most compounded rates of return in the realm of real possibility, and if you divide 72 by the rate of return, it tells you how many years it will take to double. For example, 72/10 = 7.2, so a 10 % return will double your money in just over seven years. Conversely, if you divide 72 by the number years want something to double it, it gives you the return required to do it. For example, 72/3 = 24, so to double your money in three years, it takes a compounded 24% annual return.

This is a rough rule of thumb, but if you check it with a financial calculator, its a decent ballpark estimator.

From a financial standpoint, this estimation method ignores taxes on the return, which complicates its use.

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Re: Doubling Your Money

Post by aristotelian » Sun May 13, 2018 11:20 am

Depends on the expected return of your portfolio. A conservative estimate would be 20 years using the interest rate on EE Bonds which is about 3.5%. Note that is nominal doubling, not real. Stocks earning 10% average might double in 6 years but of course that is not guaranteed.

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Re: Doubling Your Money

Post by RadAudit » Sun May 13, 2018 11:24 am

And then, after you figure out the rule of 72, all you have to do is figure out a reasonable estimate of the rate of return your portfolio will achieve. Which sort of leads you back to the idea that portfolios should match your need, ability and willingness to accept the risk commensurate with meeting your goals in a timely manner. :oops:
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arcticpineapplecorp.
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Re: Doubling Your Money

Post by arcticpineapplecorp. » Sun May 13, 2018 11:54 am

It also depends upon valuations to some extent which is why posters are subtly trying to get you to be conservative with your expectations. Typically if the stock market has grown at 8% a year over decades, that would mean a doubling every 9 years (the previously explained rule of 72). So many expect to double their money about every 10 years (in the stock market). You can see the problem with this. The U.S. stock market didn't double from 2000-2009. In fact you would have had less money than you started with (if you invested $10,000 on 1/1/2000 it would have only been worth $9800.41 by 12/31/2009. And that's with dividends reinvested! :oops: After inflation it would've been even worse!

Image

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

But what if you looked at a different 10 year period? What if you invested from 1/1/2003-12/31/2012? A $10,000 investment on 1/1/2003 would have been worth $21,459.06, a 114.59% rate of return! You doubled your money in 10 years!

Image

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

So some 10 year periods you double your money and other times you don't! As I said valuations matter too. If you invested $10,000 in the U.S. stock market on 3/6/2009 by 3/5/2012 (just 3 years later!!) you would have doubled your money and ended with $21,955.57 (119.55%). See chart below. I wouldn't count on that though, because you would have had to have invested after stocks dropped by 50%. Have you ever done that before? So, be cautious. Be conservative. Don't be overly optimistic. The market gives you what it gives you when it gives it. It's not up to you. What is up to you is your rate of savings. If you want to double your money more quickly, ramp up your rate of savings. Then you don't have to worry about what the market will do.

Image

source:
https://quotes.morningstar.com/chart/fu ... A%5B%5D%7D

What do you think?
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TravelforFun
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Re: Doubling Your Money

Post by TravelforFun » Sun May 13, 2018 12:08 pm

My asset seems to have doubled every 7-9 years. Of course it includes 401K contributions from me and my employer. I keep my AA around 70/30.

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rrouse
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Re: Doubling Your Money

Post by rrouse » Sun May 13, 2018 12:14 pm

arcticpineapplecorp. wrote:
Sun May 13, 2018 11:54 am
It also depends upon valuations to some extent which is why posters are subtly trying to get you to be conservative with your expectations. Typically if the stock market has grown at 8% a year over decades, that would mean a doubling every 9 years (the previously explained rule of 72). So many expect to double their money about every 10 years (in the stock market).
Does that include reinvesting dividends? Or just the growth in share price?

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arcticpineapplecorp.
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Re: Doubling Your Money

Post by arcticpineapplecorp. » Sun May 13, 2018 12:18 pm

rrouse wrote:
Sun May 13, 2018 12:14 pm
arcticpineapplecorp. wrote:
Sun May 13, 2018 11:54 am
It also depends upon valuations to some extent which is why posters are subtly trying to get you to be conservative with your expectations. Typically if the stock market has grown at 8% a year over decades, that would mean a doubling every 9 years (the previously explained rule of 72). So many expect to double their money about every 10 years (in the stock market).
Does that include reinvesting dividends? Or just the growth in share price?
It includes dividends. But do you understand the main points of my previous post? That returns or rather sequence of returns are highly variable? Many expect to double every 10 years and then are disappointed when they don't. Some of these people then bail on stocks (at exactly the wrong time!) Which is why so many never actually get the return of the stock market. They don't hang on long enough to capture the returns they should. Stay the course. Since investing is based on 1. the amount of money you invest, 2. the length of time you keep money invested, 3. the rate of return you get on your investment over time...the best thing to do is invest as much as you can, for as long as you can and take as much risk as you have the need to take, the ability to take and the willingness to take (but no more).

Even though the stock market has tended to grow at about 8% per year doesn't mean you should expect that year in/year out. The market has very rarely actually given investors 8% in any given year. Some years the market's up 20% (or more) and other times it's down 20% (or more) as well as anything in between. You've got to hang on for the ride. It's the ride of your life.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Ged
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Re: Doubling Your Money

Post by Ged » Sun May 13, 2018 12:25 pm

The rule of 72 is an approximation of the following formula:

t = ln(2)/(ln(1+r/100)) where r is the interest rate percentage per period and t is the number of periods.

This is quite easy to use in a spreadsheet or a scientific/financial calculator.

For a situation involving continuous interest 69 is more accurate. 72 works well for interest paid at the end of fixed periods. The above formula is for periodic compounding.

For continuous compounding t = ln(2)/r.

For tripling time replace the constant 2 in the above equations with 3. For 50% increase use 1.5.

see https://en.wikipedia.org/wiki/Rule_of_72

rrouse
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Re: Doubling Your Money

Post by rrouse » Sun May 13, 2018 12:45 pm

arcticpineapplecorp. wrote:
Sun May 13, 2018 12:18 pm
It includes dividends. But do you understand the main points of my previous post? That returns or rather sequence of returns are highly variable? Many expect to double every 10 years and then are disappointed when they don't.
I do.

The reason I ask is that at age 50 we have a fair bit in our retirement accounts (~$1.5M) with an ultimate goal of about $3M so as to generate $120K a year in income. My wife would like to retire sooner rather than later, but we also have 8 years left on the mortgage.

So I'm trying to figure out the right mix of continued retirement contributions vs. accelerating the payoff of the mortgage. Currently we are maxing out all our contributions (~$88,500 per year), but just paying the mortgage down at the normal amortization schedule. We could shift some (or all) from savings and pay off the house more quickly. Ideally we would hit our savings goal and pay off the house at the same time, at which point she could retire. I might continue work a bit longer, as I enjoy my job. I'm trying to set her expectations.

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arcticpineapplecorp.
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Re: Doubling Your Money

Post by arcticpineapplecorp. » Sun May 13, 2018 1:16 pm

rrouse wrote:
Sun May 13, 2018 12:45 pm
arcticpineapplecorp. wrote:
Sun May 13, 2018 12:18 pm
It includes dividends. But do you understand the main points of my previous post? That returns or rather sequence of returns are highly variable? Many expect to double every 10 years and then are disappointed when they don't.
I do.

The reason I ask is that at age 50 we have a fair bit in our retirement accounts (~$1.5M) with an ultimate goal of about $3M so as to generate $120K a year in income. My wife would like to retire sooner rather than later, but we also have 8 years left on the mortgage.

So I'm trying to figure out the right mix of continued retirement contributions vs. accelerating the payoff of the mortgage. Currently we are maxing out all our contributions (~$88,500 per year), but just paying the mortgage down at the normal amortization schedule. We could shift some (or all) from savings and pay off the house more quickly. Ideally we would hit our savings goal and pay off the house at the same time, at which point she could retire. I might continue work a bit longer, as I enjoy my job. I'm trying to set her expectations.
Right. I'm just trying to make sure your expectations are reasonable. There's a good article by Michael Kitces below that reinforces the point that returns are not usually as clean as financial planners project them to be. Imagine those who planned to retire in 2008 or so and expected to double their money from 2000-2008 (or 09). Those next 10 years did not in fact double an investor's money. Read the article below to see what I mean. (fortunately this is one of Michael's shorter pieces. He's gotten very detailed/long winded over the past few years, but this piece makes the point nicely in a short format).

https://www.kitces.com/blog/is-save-for ... nt-advice/
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

cherijoh
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Re: Doubling Your Money

Post by cherijoh » Sun May 13, 2018 1:45 pm

rrouse wrote:
Sun May 13, 2018 12:45 pm
arcticpineapplecorp. wrote:
Sun May 13, 2018 12:18 pm
It includes dividends. But do you understand the main points of my previous post? That returns or rather sequence of returns are highly variable? Many expect to double every 10 years and then are disappointed when they don't.
I do.

The reason I ask is that at age 50 we have a fair bit in our retirement accounts (~$1.5M) with an ultimate goal of about $3M so as to generate $120K a year in income. My wife would like to retire sooner rather than later, but we also have 8 years left on the mortgage.

So I'm trying to figure out the right mix of continued retirement contributions vs. accelerating the payoff of the mortgage. Currently we are maxing out all our contributions (~$88,500 per year), but just paying the mortgage down at the normal amortization schedule. We could shift some (or all) from savings and pay off the house more quickly. Ideally we would hit our savings goal and pay off the house at the same time, at which point she could retire. I might continue work a bit longer, as I enjoy my job. I'm trying to set her expectations.
$120K/year after paying off the mortgage is a pretty generous retirement income (even including taxes as it should). Is everything in a tax advantaged account or is some of it in taxable?

How much of that spending is discretionary? If quite a bit of it is, you may want to invest some of the variable retirement withdrawal strategies. Under those scenarios you may not need $3M.

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Re: Doubling Your Money

Post by make_a_better_world » Sun May 13, 2018 2:20 pm

This is grossly oversimplified but...

If you hold your money in the US stock market as a whole AND the stock market continues to perform as it has over the last 100 years AND you look at a long time line of 30 years or more THEN:

In a non-taxable account (you do not pay taxes on gains or dividends, especially when rebalancing the fund): every 7 years on average to double

In a taxable account (you have to pay taxes on certain gains as you get them): every 10 years on average to double

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Re: Doubling Your Money

Post by willthrill81 » Sun May 13, 2018 2:27 pm

arcticpineapplecorp. wrote:
Sun May 13, 2018 1:16 pm
rrouse wrote:
Sun May 13, 2018 12:45 pm
arcticpineapplecorp. wrote:
Sun May 13, 2018 12:18 pm
It includes dividends. But do you understand the main points of my previous post? That returns or rather sequence of returns are highly variable? Many expect to double every 10 years and then are disappointed when they don't.
I do.

The reason I ask is that at age 50 we have a fair bit in our retirement accounts (~$1.5M) with an ultimate goal of about $3M so as to generate $120K a year in income. My wife would like to retire sooner rather than later, but we also have 8 years left on the mortgage.

So I'm trying to figure out the right mix of continued retirement contributions vs. accelerating the payoff of the mortgage. Currently we are maxing out all our contributions (~$88,500 per year), but just paying the mortgage down at the normal amortization schedule. We could shift some (or all) from savings and pay off the house more quickly. Ideally we would hit our savings goal and pay off the house at the same time, at which point she could retire. I might continue work a bit longer, as I enjoy my job. I'm trying to set her expectations.
Right. I'm just trying to make sure your expectations are reasonable. There's a good article by Michael Kitces below that reinforces the point that returns are not usually as clean as financial planners project them to be. Imagine those who planned to retire in 2008 or so and expected to double their money from 2000-2008 (or 09). Those next 10 years did not in fact double an investor's money. Read the article below to see what I mean. (fortunately this is one of Michael's shorter pieces. He's gotten very detailed/long winded over the past few years, but this piece makes the point nicely in a short format).

https://www.kitces.com/blog/is-save-for ... nt-advice/
The silver lining to the cloud of an extended stretch of poor returns like 2000-2009 is that it tends to come after a period of good returns (e.g. 1990-1999) and a period of good returns usually follows (2010-now). But this is not a universal truth nor a guarantee.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Doubling Your Money

Post by willthrill81 » Sun May 13, 2018 3:09 pm

rrouse wrote:
Sun May 13, 2018 10:58 am
What is a reasonable expectation or rule of thumb for doubling (in real terms) your stock market holdings, assuming you reinvest dividends?
A reasonable expectation might be to assume that the future will look like the past and that you'll get historic real returns, which are about 7% for stocks. At that rate of growth, it would take about a 10 years (72/7) for stocks to double in real dollars.

But as others have noted, this has varied tremendously, depending on which period is being investigated. Money invested in U.S. stocks in 1990 had doubled in real terms by the end of 1996 and nearly doubled again by May of 2000. But from 2000-2009, the real return of stocks was -2.73% annually (i.e. $10,000 became $7,585 in real dollars). And money invested in 2010 had doubled by 2014.

If that sounds like it's all over the place, that's because it is. Historically, average returns are not the norm. That's why Jeremy Siegel, a big stock proponent, titled his book "Stocks for the Long Run."
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Doubling Your Money

Post by whodidntante » Sun May 13, 2018 3:15 pm

Since you already have good answers to your question, I propose a diversion. It's just as important to understand how quickly your money can be cut in half, and it's the risk of loss that enables an outsized return compared to cash.

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arcticpineapplecorp.
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Re: Doubling Your Money

Post by arcticpineapplecorp. » Sun May 13, 2018 4:02 pm

whodidntante wrote:
Sun May 13, 2018 3:15 pm
Since you already have good answers to your question, I propose a diversion. It's just as important to understand how quickly your money can be cut in half, and it's the risk of loss that enables an outsized return compared to cash.
good point. For the OP, read more here to see what whodidntante is referring to:

https://www.bogleheads.org/wiki/Percent ... n_and_loss
Last edited by arcticpineapplecorp. on Sun May 13, 2018 9:22 pm, edited 1 time in total.
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rrouse
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Re: Doubling Your Money

Post by rrouse » Sun May 13, 2018 5:25 pm

cherijoh wrote:
Sun May 13, 2018 1:45 pm
$120K/year after paying off the mortgage is a pretty generous retirement income (even including taxes as it should). Is everything in a tax advantaged account or is some of it in taxable?

How much of that spending is discretionary? If quite a bit of it is, you may want to invest some of the variable retirement withdrawal strategies. Under those scenarios you may not need $3M.
Yeah, that's all in 401(k) and Roth IRA accounts. We also have about 24-months of expenses saved in taxable accounts and I-Bonds, plus half interest in a 38-unit apartment building that should be paid off in about 10 years.

The problem with $120K is that it is quite a bit less than we make now. Our share of the apartment building should provide an additional $75-100K most years once the mortgage is paid off. We don't have any pensions though other than social security. I'm hoping that between all that and no longer having to pay on the home mortgage or contribute to retirement we could maintain a similar standard of living to what we have now.

As for discretionary spending, I suppose that aside from the basics, most of it is lifestyle expenses. The biggest expense is the house. It's about 4,500 sf and can be costly to maintain for just the two of us. Maybe we'll downsize at some point.

dbr
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Re: Doubling Your Money

Post by dbr » Sun May 13, 2018 5:41 pm

rrouse wrote:
Sun May 13, 2018 12:45 pm
arcticpineapplecorp. wrote:
Sun May 13, 2018 12:18 pm
It includes dividends. But do you understand the main points of my previous post? That returns or rather sequence of returns are highly variable? Many expect to double every 10 years and then are disappointed when they don't.
I do.

The reason I ask is that at age 50 we have a fair bit in our retirement accounts (~$1.5M) with an ultimate goal of about $3M so as to generate $120K a year in income. My wife would like to retire sooner rather than later, but we also have 8 years left on the mortgage.

So I'm trying to figure out the right mix of continued retirement contributions vs. accelerating the payoff of the mortgage. Currently we are maxing out all our contributions (~$88,500 per year), but just paying the mortgage down at the normal amortization schedule. We could shift some (or all) from savings and pay off the house more quickly. Ideally we would hit our savings goal and pay off the house at the same time, at which point she could retire. I might continue work a bit longer, as I enjoy my job. I'm trying to set her expectations.
As articpineapplecorp is explaining, investment results are too variable even with a known expected return* to compute what you want to compute. At the very least put your numbers into a model such as www.firecalc.com and see what can be expected.

*Expected return is the average of the distribution from which the actual results in each year will be a random draw. The consequence is that your end-point wealth ten years from now will turn out to be one actual result from a wide range of possibilities. If you want to ensure growth to $3M you have to make sure that distribution of possibilities lies almost entirely higher than $3M. That takes more money and more return than just having the average or median fall at $3M. If the median falls at $3M, then half the outcomes will be below that.

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Re: Doubling Your Money

Post by willthrill81 » Sun May 13, 2018 5:45 pm

rrouse wrote:
Sun May 13, 2018 5:25 pm
The problem with $120K is that it is quite a bit less than we make now. Our share of the apartment building should provide an additional $75-100K most years once the mortgage is paid off. We don't have any pensions though other than social security. I'm hoping that between all that and no longer having to pay on the home mortgage or contribute to retirement we could maintain a similar standard of living to what we have now.

As for discretionary spending, I suppose that aside from the basics, most of it is lifestyle expenses. The biggest expense is the house. It's about 4,500 sf and can be costly to maintain for just the two of us. Maybe we'll downsize at some point.
$100k of annual income is about 70% above the median household income for the U.S. and well above the median household income for any city I can find, including San Francisco at $77k. Assuming that either you or your spouse have maxed out Social Security benefits, your annual SS benefit at full retirement age (66) will be at least $47k ($31.7k for one spouse and half again that for the other) in today's money on top of what you've already identified. If you can't make ends meet with all of that and no mortgage.... :wink:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Doubling Your Money

Post by Dottie57 » Sun May 13, 2018 6:22 pm

OP

There is no guarantee of doubling money.

My Rollover IRA rolled over from 401k in 1996 rose from 125k to 350k today. Twenty two years. I was invested in front load funds :( . There were large pull backs during this time. No dollars added.

Not a great return, but better than a savings account. If I had 7% return each year, the account would have about 500k.

401k turned out great, because I kept adding $ through high and low fund NAVs.

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Re: Doubling Your Money

Post by libralibra » Sun May 13, 2018 8:44 pm

rrouse wrote:
Sun May 13, 2018 12:45 pm
So I'm trying to figure out the right mix of continued retirement contributions vs. accelerating the payoff of the mortgage. Currently we are maxing out all our contributions (~$88,500 per year), but just paying the mortgage down at the normal amortization schedule. We could shift some (or all) from savings and pay off the house more quickly.
If your investments will earn more than your mortgage rate, you could just continue to pay the minimum until you decide to retire and pay off the loan balance from the investments. Mathematically that is better than making extra payments each month.

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Re: Doubling Your Money

Post by cherijoh » Mon May 14, 2018 7:26 am

rrouse wrote:
Sun May 13, 2018 5:25 pm
cherijoh wrote:
Sun May 13, 2018 1:45 pm
$120K/year after paying off the mortgage is a pretty generous retirement income (even including taxes as it should). Is everything in a tax advantaged account or is some of it in taxable?

How much of that spending is discretionary? If quite a bit of it is, you may want to invest some of the variable retirement withdrawal strategies. Under those scenarios you may not need $3M.
Yeah, that's all in 401(k) and Roth IRA accounts. We also have about 24-months of expenses saved in taxable accounts and I-Bonds, plus half interest in a 38-unit apartment building that should be paid off in about 10 years.

The problem with $120K is that it is quite a bit less than we make now. Our share of the apartment building should provide an additional $75-100K most years once the mortgage is paid off. We don't have any pensions though other than social security. I'm hoping that between all that and no longer having to pay on the home mortgage or contribute to retirement we could maintain a similar standard of living to what we have now.

As for discretionary spending, I suppose that aside from the basics, most of it is lifestyle expenses. The biggest expense is the house. It's about 4,500 sf and can be costly to maintain for just the two of us. Maybe we'll downsize at some point.
Hmm, it appears you may need to make a choice - keep the house or retire early. I definitely don't see you retiring while still paying off a mortgage on a 4500 sf house. How much does P&I add to your annual expenses?

If you retire with a big mortgage payment and a relatively high withdrawal rate, you would be a prime candidate for sequence of return risk. If the stock market tanks (say 30 - 50% decline) while you are taking your maximum withdrawal from your nest egg (still paying mortgage, no SS, low cash flow from RE investments) you could permanently cripple your nest egg. If you wait until your house and the investment RE is paid off, you could easily sustain your desired spending rate since only a small portion would need to come out of your retirement portfolio.

When it comes to retirement planning, you hope for the best and plan for the worst. You don't rest on your laurels and expect the market to get you where you want to be - especially after the long bull run we have had.

The Wizard
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Re: Doubling Your Money

Post by The Wizard » Mon May 14, 2018 8:56 am

I agree with some of the others that it's dangerous to try to design an investment plan that depends on your portfolio doubling over some number of years.
You get what you get each year in your portfolio and there's no accurate prediction on what next year will do.
Hence, keep contributing healthy amounts toward your retirement.

And nothing wrong with having a modest mortgage at start of retirement, so long as your retirement income is good.
I've had a modest HELOC in retirement towards which I pay $1000/month. When it's gone before long, the extra $1000 will be a nice inflation fighting uptick...
Attempted new signature...

msk
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Re: Doubling Your Money

Post by msk » Mon May 14, 2018 9:27 am

50 year average history, 1966 to 2016 for the SP500:
Nominal capital growth 6.6% p.a. compounded
Nominal Inflation 4% p.a. compounded
Dividends untaxed 3.1% p.a., taxed at 15% 2.2% p.a.

Rough pace of growth in REAL terms but paying tax on dividends at 15% = 6.6+2.2-4 or ROUGHLY 4.8% p.a.
It will take 15 years to double in REAL terms. This is based on a 50 year average. Nevertheless if we use a 300 year average, according to Piketty (Capital in the 21st Century) productive RE returned around 5% while Trade and Industry returned 1 to 2% more.; all in the days before income tax. So the past 50 years seem to be fully in line with the past 300. IMHO humans are genetically programmed to expect a return in REAL terms of 5+% for Trade and Industry. Are stocks = Trade and Industry or just sitting on one's butt similar to collecting rent on RE? Perhaps in-between? Nevertheless 5% p.a. real and compounded does seem to be our genetic expectation :mrgreen: Fluctuations up and down are just noise. But the noise can indeed be very loud and lingering if you are unlucky over the next decade or two.

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Re: Doubling Your Money

Post by ofcmetz » Mon May 14, 2018 11:00 am

libralibra wrote:
Sun May 13, 2018 8:44 pm
rrouse wrote:
Sun May 13, 2018 12:45 pm
So I'm trying to figure out the right mix of continued retirement contributions vs. accelerating the payoff of the mortgage. Currently we are maxing out all our contributions (~$88,500 per year), but just paying the mortgage down at the normal amortization schedule. We could shift some (or all) from savings and pay off the house more quickly.
If your investments will earn more than your mortgage rate, you could just continue to pay the minimum until you decide to retire and pay off the loan balance from the investments. Mathematically that is better than making extra payments each month.
This is what I'm doing. I have 6 years left on a 15 year mortgage and will retire from current job sometime in next 5 years or less. I'd rather have the liquidity of the investment accounts and just write a check for the last bit of the mortgage from investments at some point.
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HomerJ
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Re: Doubling Your Money

Post by HomerJ » Mon May 14, 2018 12:11 pm

rrouse wrote:
Sun May 13, 2018 5:25 pm
The problem with $120K is that it is quite a bit less than we make now. Our share of the apartment building should provide an additional $75-100K most years once the mortgage is paid off.
It doesn't matter what you make now.

What matters is what you'll spend in retirement.

With the mortgage paid off on your house, will you spend $200k (plus SS) a year?

I would suggest tracking your expenses carefully for a year or two.

Time or money. You may have to make the decision between retiring soon with $12,000 a month to spend or retiring later with $18,000 a month to spend.

Those are both very big numbers. Which is more important to you, the extra money or the extra time?
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Chadnudj
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Re: Doubling Your Money

Post by Chadnudj » Mon May 14, 2018 12:29 pm

rrouse wrote:
Sun May 13, 2018 12:45 pm
arcticpineapplecorp. wrote:
Sun May 13, 2018 12:18 pm
It includes dividends. But do you understand the main points of my previous post? That returns or rather sequence of returns are highly variable? Many expect to double every 10 years and then are disappointed when they don't.
I do.

The reason I ask is that at age 50 we have a fair bit in our retirement accounts (~$1.5M) with an ultimate goal of about $3M so as to generate $120K a year in income. My wife would like to retire sooner rather than later, but we also have 8 years left on the mortgage.

So I'm trying to figure out the right mix of continued retirement contributions vs. accelerating the payoff of the mortgage. Currently we are maxing out all our contributions (~$88,500 per year), but just paying the mortgage down at the normal amortization schedule. We could shift some (or all) from savings and pay off the house more quickly. Ideally we would hit our savings goal and pay off the house at the same time, at which point she could retire. I might continue work a bit longer, as I enjoy my job. I'm trying to set her expectations.
I'd suggest that you need to keep maxing out your contributions as long as possible, given the tax benefits you (almost surely -- if you're contributing $88.5k per year, you must have a pretty high income and thus potentially high marginal tax rate) enjoy by doing so. If you have extra on top of that/after doing that, then sure -- go right ahead and use that on early mortgage paydown. But don't miss out on the tax benefits of the retirement contributions.

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BL
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Re: Doubling Your Money

Post by BL » Mon May 14, 2018 12:43 pm

The problem with $120K is that it is quite a bit less than we make now.
What is important is what you spend now, and also what spending looks like in the future. If you haven't already done so, I suggest you keep track now to find out.

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willthrill81
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Re: Doubling Your Money

Post by willthrill81 » Mon May 14, 2018 3:11 pm

msk wrote:
Mon May 14, 2018 9:27 am
50 year average history, 1966 to 2016 for the SP500:
Nominal capital growth 6.6% p.a. compounded
Nominal Inflation 4% p.a. compounded
Dividends untaxed 3.1% p.a., taxed at 15% 2.2% p.a.

Rough pace of growth in REAL terms but paying tax on dividends at 15% = 6.6+2.2-4 or ROUGHLY 4.8% p.a.
It will take 15 years to double in REAL terms. This is based on a 50 year average. Nevertheless if we use a 300 year average, according to Piketty (Capital in the 21st Century) productive RE returned around 5% while Trade and Industry returned 1 to 2% more.; all in the days before income tax. So the past 50 years seem to be fully in line with the past 300. IMHO humans are genetically programmed to expect a return in REAL terms of 5+% for Trade and Industry. Are stocks = Trade and Industry or just sitting on one's butt similar to collecting rent on RE? Perhaps in-between? Nevertheless 5% p.a. real and compounded does seem to be our genetic expectation :mrgreen: Fluctuations up and down are just noise. But the noise can indeed be very loud and lingering if you are unlucky over the next decade or two.
The problem with using average returns for projections of the future is that even if the future resembles the past, historically 'average' returns have not been the norm.

For instance, look at the S&P 500's inflation-adjusted returns from 1871 to 2018 with dividend reinvestment over 15 year periods, the OP's stated time frame. At the bottom 20th percentile, annual returns were just 2.89%, while at the top 80th percentile, annual returns were 10.21%. To the extent that the future resembles the past, there is about a 67% probability that the OP will at least double his portfolio over the next 15 years if it's invested 100% in the S&P 500 (not something I would recommend BTW).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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arcticpineapplecorp.
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Re: Doubling Your Money

Post by arcticpineapplecorp. » Tue May 15, 2018 4:52 pm

how timely...I just got this article in my email just now from Real Investing Journal (Tom Cock and Don MacDonald). Here's what Don says:
The US stock market has delivered an average annual return of around 10% since 1926. But short-term results may vary, and in any given period stock returns can be positive, negative, or flat. When setting expectations, it’s helpful to see the range of outcomes experienced by investors historically. For example, how often have the stock market’s annual returns actually aligned with its long-term average?

Exhibit 1 shows calendar year returns for the S&P 500 Index since 1926. The shaded band marks the historical average of 10%, plus or minus 2 percentage points. The S&P 500 had a return within this range in only six of the past 91 calendar years. In most years the index’s return was outside of the range, often above or below by a wide margin, with no obvious pattern. For investors, this data highlights the importance of looking beyond average returns and being aware of the range of potential outcomes.

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source: https://www.realinvestingjournal.com/re ... of-average
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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CyclingDuo
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Re: Doubling Your Money

Post by CyclingDuo » Tue May 15, 2018 5:48 pm

rrouse wrote:
Sun May 13, 2018 10:58 am
What is a reasonable expectation or rule of thumb for doubling (in real terms) your stock market holdings, assuming you reinvest dividends?
Stocks with a reasonable expectation (annual return of 7%): 10 years
Real Estate (usually 3-4% annual appreciation): 20 years
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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