Arthgyaan

Supporting everyone's personal finance journey

How easy is it to double your portfolio?

This article shows you how the growth of your investments, the amount you invest and how fast you grow your income have roles to play in increasing your net worth.

How easy is it to double your portfolio?


Posted on 02 Jun 2024
Author: Sayan Sircar
14 mins read
๐Ÿ“ขJoin 2500+ readers on WhatsApp and get new post notifications!

This article shows you how the growth of your investments, the amount you invest and how fast you grow your income have roles to play in increasing your net worth.

How easy is it to double your portfolio?

๐Ÿ“š Topics covered:

What is the easiest way to think of doubling your portfolio?

We will take the simplest possible way of thinking about this problem:

  • a starting value of 100 (think about this as โ‚น100 lakhs, โ‚น10 lakhs, โ‚น10 crore whatever)
  • every year you invest 10
  • every year you get a growth of 10 (just like simple interest)
Year Start Investment Growth End
1 100.00 10.00 10.00 120.00
2 120.00 10.00 10.00 140.00
3 140.00 10.00 10.00 160.00
4 160.00 10.00 10.00 180.00
5 180.00 10.00 10.00 200.00
Total โ€“ 50.00 50.00 โ€“

In five years:

  • you started with 100
  • you have invested 50
  • you have got a return of 50

So, your money has now doubled. In real life, however, there are a few additional nuances:

  • your money will not grow like an FD increasing year-on-year if you invest in risky investments like stocks or mutual funds. There will be ups and downs
  • the return you get this year will be a part of the capital for next year (compounding effect), If your return is positive, your whole portfolio will go up and vice versa
  • the amount you invest will depend on your salary (income) hikes and how fast your monthly expenses increase
  • how much you can invest every year as a percentage of your income

So, three factors will make your portfolio double its value:

  • how much you can invest
  • how much you can increase the invested amount next year (step-up rate)
  • how much return do you get

Of these, the last factor which is the return you get is not under your control. You can try to optimise it, by looking for the best investments, but you will end up with the return you get and not the one you want.

Rule of 72

The rule of 72 says: Rate of doubling * Time in years = 72

Prudent readers should focus on the two factors they can control: investment rate and income growth rate (step-up rate) applying the compounding equation and the rule of 72.

Here we break down the rate of doubling into three components: investment as a percentage of the portfolio, step-up rate and the portfolio growth rate.

What is a step-up SIP and why do we need it here?

Investment amount growth = Salary growth - Lifestyle inflation growth

It is important to keep the above approximate relationship in mind when considering how the investment amount/year figure grows. This concept is that of the step-up SIP.

Income increases with time for most people while they are working and not yet retired. Their expenses also increase and not necessarily at the same rate.

Year Income (10% hike) Expenses (8% inflation) Surplus SIP Extra investment
1 100.0 60.0 40.0 40.0 0.0
2 110.0 64.8 45.2 40.0 5.2
3 121.0 70.0 51.0 40.0 11.0
4 133.1 75.6 57.5 40.0 17.5
5 146.4 81.6 64.8 40.0 24.8
6 161.1 88.2 72.9 40.0 32.9
7 177.2 95.2 81.9 40.0 41.9
8 194.9 102.8 92.0 40.0 52.0
9 214.4 111.1 103.3 40.0 63.3
10 235.8 119.9 115.9 40.0 75.9

In this case, we can see that the investment amount is growing at 11% per year. We can invest this extra amount as a step-up SIP to create wealth in the examples below.

Related:
What is a step-up SIP and how much more wealth does it create vs. a normal SIP?

Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.

How to double your portfolio in three years?

This example is best suited to those investors who are either early in their careers or are investing a very large amount per month relative to their portfolio value or both so that they can invest 15% of their portfolio value per year. They are also experiencing excellent investment growth (salary growth minus expense growth) of 15%/year (this is the step-up rate).

They are also fairly lucky with their investments getting an average of 11% XIRR.

Year Start Investment Growth End
1 100.00 15.00 12.43 127.43
2 127.43 17.25 15.75 160.43
3 160.43 19.84 19.73 200.00
Total โ€“ 52.09 47.91 โ€“

Using these numbers (15% investment, 15% step-up rate and 11% portfolio return), the portfolio doubles in 3 years.

How to double your portfolio in four years?

Here we will take the example of a modest portfolio in terms of the amount invested (9%) and a decent annual step-up rate (10%). Here we need 10% portfolio growth to double the value in 4 years. Here we will focus more on the equity slice of the portfolio since the target growth amount is high at 10%.

Year Start Investment Growth End
1 100.00 9.00 10.99 119.99
2 119.99 9.90 13.14 143.03
3 143.03 10.89 15.62 169.55
4 169.55 11.98 18.48 200.00
Total โ€“ 41.77 58.23 โ€“

Using these numbers (9% investment, 10% step-up rate and 10% portfolio return), the portfolio doubles in 4 years.

Also read
How much money can NRIs in the US gift to their parents in India in 2024?

How to double your portfolio in five years?

Here is the case of the late-career stage investor with a multi-crore portfolio. Here the amount invested is modest, due to the size of the portfolio, the step-up rate is decent at 10% and the portfolio is a mix of risky assets (like equity) and debt-type assets like Provident fund, debt mutual funds and investment real-estate.

Year Start Investment Growth End
1 100.00 7.00 8.49 115.49
2 115.49 7.70 9.80 132.99
3 132.99 8.47 11.27 152.73
4 152.73 9.32 12.92 174.97
5 174.97 10.25 14.79 200.00
Total โ€“ 42.74 57.27 โ€“

Using these numbers (7% investment, 10% step-up rate and 8% portfolio return), the portfolio doubles in 5 years. Here it is important to note that only 8% portfolio growth, which does not require any fancy investment growth, is enough to double the portfolio in a decent amount of time.

What about double-income families?

A double-income family differs from single-income families in one critical aspect: their investment amount per year as a percentage of total portfolio value will be much higher compared to single-income families.

The example below uses these numbers:

  • 20% investment per year as a percentage of the portfolio
  • 10% step-up rate
  • 7.8% portfolio growth

Under these assumptions, the portfolio doubles in 3 years.

Year Start Investment Growth End
1 100.00 20.00 8.76 128.76
2 128.76 22.00 11.15 161.91
3 161.91 24.20 13.89 200.00
Total โ€“ 66.20 33.80 โ€“

It is important to note here that the total investment (66.20 over 3 years) is the main driver of portfolio increase vs. the return that you get (33.80 over 3 years)

If we take the same assumptions of 10% step-up rate and 7.8% portfolio growth but change the family to single-income with around 12% investment per year as a percentage of the portfolio, then it takes 4 years to double the portfolio.

Year Start Investment Growth End
1 100.00 11.87 8.47 120.34
2 120.34 13.06 10.15 143.54
3 143.54 14.36 12.06 169.97
4 169.97 15.80 14.23 200.00
Total โ€“ 55.10 44.90 โ€“

Here the role of investment amount (55.10 over 4 years) is less important than before and the role of portfolio growth (44.90 over 4 years) is more than in the previous case.

What about the case of withdrawal from your portfolio?

Withdrawal during retirement changes the equation quite a bit. Assuming a 2.5% withdrawal rate and a 7% increase in the withdrawal amount per year, it will take an absurd 16%/year investment return to double the portfolio in 5 years.

Year Start Investment Growth End
1 100.00 -2.50 17.03 114.53
2 114.53 -2.68 19.52 131.38
3 131.38 -2.86 22.41 150.92
4 150.92 -3.06 25.76 173.62
5 173.62 -3.28 29.65 200.00
Total โ€“ -14.38 114.37 โ€“

Using more realistic portfolio growth numbers of 9.4%, the portfolio doubles in 10 years. Even that is a bit on the higher side for a retirement portfolio.

Year Start Investment Growth End
1 100.00 -2.50 9.68 107.18
2 107.18 -2.68 10.37 114.87
3 114.87 -2.87 11.12 123.11
4 123.11 -3.08 11.91 131.95
5 131.95 -3.30 12.77 141.42
6 141.42 -3.54 13.69 151.57
7 151.57 -3.79 14.67 162.45
8 162.45 -4.06 15.72 174.11
9 174.11 -4.35 16.85 186.61
10 186.61 -4.67 18.06 200.00
Total โ€“ -34.83 134.83 โ€“

However, the purpose of a retirement portfolio is not to double it every N number of years. We have discussed how retirement portfolios behave in this article: Can you run a SWP from mutual funds when you are retired?

What are the takeaways from this analysis?

There is nothing special about doubling the portfolio. It is like driving your car fast to reach your office in half the time which is neither practical nor necessary.

However, if we study the compounding equation shown above, especially the rule of 72, there are other things to learn here:

What's next? You can join the Arthgyaan WhatsApp community

You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

To understand how this article can help you:

If you have a comment or question about this article

The following button will open a form with the link of this page populated for context:

If you liked this article, please leave us a rating

The following button will take you to Trustpilot:

Discover an article from the archives

Previous and next articles:

<p>This article shows you the pros and cons of each approach you can take between today and the General Election Results next week regarding your portfolio.</p>
Behaviour News
Navigating Election Uncertainty: Should You Sell, Hold, or Buy More Stocks?

This article shows you the pros and cons of each approach you can take between today and the General Election Results next week regarding your portfolio.

Published: 29 May 2024

10 MIN READ


<p>This article lists all the mutual funds that fell the most due to market volatility on 4th June 2024.</p>
Market Movements Mutual Funds
Worst mutual funds of 4th June 2024: which mutual funds fell the most on election results day?

This article lists all the mutual funds that fell the most due to market volatility on 4th June 2024.

Published: 5 June 2024

3 MIN READ


Latest articles:

<p>This article discusses the NFO of the Motilal Oswal Nifty Defence Index Fund which is the second fund tracking the Nifty Defence Index.</p>
Review Mutual Funds
Motilal Oswal Nifty Defence Index Fund NFO is now open: should you invest?

This article discusses the NFO of the Motilal Oswal Nifty Defence Index Fund which is the second fund tracking the Nifty Defence Index.

Published: 15 June 2024

5 MIN READ


<p>This article discusses the Nifty EV & New Age Automotive Index covering the EV ecosystem or new-age auto technologies in India and whether these stocks are suitable for investors.</p>
Review
NSE launches the Nifty EV & New Age Automotive Index. Should you invest?

This article discusses the Nifty EV & New Age Automotive Index covering the EV ecosystem or new-age auto technologies in India and whether these stocks are suitable for investors.

Published: 14 June 2024

7 MIN READ


Topics you will like:

Asset Allocation (21) Basics (8) Behaviour (14) Budgeting (12) Calculator (25) Case Study (6) Children (17) Choosing Investments (37) FAQ (12) FIRE (13) Fixed Deposit (9) Gold (22) Health Insurance (5) House Purchase (33) Insurance (17) International Investing (13) Life Stages (2) Loans (20) Market Data (9) Market Movements (20) Mutual Funds (50) NPS (9) NRI (19) News (20) Pension (8) Portfolio Construction (53) Portfolio Review (27) Reader Questions (8) Real Estate (7) Research (5) Retirement (38) Review (19) Risk (7) Safe Withdrawal Rate (5) Set Goals (28) Step by step (15) Tax (61)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself.

Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.

Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.

More posts...

Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.

This post titled How easy is it to double your portfolio? first appeared on 02 Jun 2024 at https://arthgyaan.com


We are currently at 415 posts and growing fast. Search this site:
Copyright ยฉ 2021-2024 Arthgyaan.com. All rights reserved.