A sum of money is invested at two percent per month. That means it will double in six months, or approximately two years. If this is done on a semi-annual basis, a sum invested at 2% per month will more than double in five years. This is called compounding. The frequency of compounding can be increased up to infinity. This compounding can be applied to any present value amount.
In order to make a 6% annual return, a sum of money should be invested at two percent per month. The investment must have a present value of at least $10,000 in two years. To see how much your investment is worth after two years, you can multiply it by six percent. A conservative investor expects a two percent annual rate of return. An investor who is more risk-tolerant is looking for a higher rate of return.
This investment strategy is similar to other investment strategies, except that the money is invested in fixed-income securities instead of bonds. The same principal is invested in stocks and mutual funds. A higher risk investor expects a 6% annual return. For the same amount of time, the portfolio will double to three hundred thousand dollars. A conservative investor will be content with a 3% annual rate of return, while a more aggressive risk-tolerant investor will look for a 6% annual rate of return.
If you invest $100,000 in a stock, bond, or mutual fund, you will earn 6.25% per year, compounded monthly. After 20 years, the same portfolio will be worth $180,611 in the risk-averse investor’s scenario. A risk-tolerant investor expects to earn six percent a year. A 7% annual return would give you $320,711 in your twenty-year investment.
In this scenario, the sum of money invested in a mutual fund will earn 6.25% per year. In two years, a portfolio will be worth $320,714 for a conservative investor. A risk-tolerant investor will expect a 7% annual return on his $100,000 investment. A risk-free investor will expect to make a two-year-old $10,000 in twenty-two years.
The return on an investment can vary dramatically. For example, if you invest a sum of money at two per six-months, you can expect to make a 6.25% return in two years. For a $100,000 investment, you can expect a 6% annual return. But if you want to earn a 7% annual rate, you should choose a risk-averse strategy.
An investor with a conservative attitude will be happy with a modest 3% annual return. However, a risk-averse investor will be happy with a 6% annual return. After twenty years, his $100,000 investment would be worth $320,714. A risk-tolerant investor will seek a higher rate of return. In 20 years, you must have a present value of a sum of money invested at 2%.
Similarly, you should be aware of your risk tolerance. The risk-averse investor will be happy with a 3% annual return and will be happy to wait until the investment doubles every six months to see how much the portfolio will grow. A risk-tolerant investor would be more optimistic and expect to see a 6% annual return. Eventually, he would make his $100,000 investment worth $320,714.
Suppose an investor has $10,000 to invest. After 20 years, his investment will have grown to $180,611 and $320,714. Using the same scenario, a risk-averse investor will accept a 3% annual return on his investment. A risk-tolerant investor will expect to receive a 6% annual return. If he invests at 6% per-month, he will be happy, he will see his $100,000 grow to $270,714.