The beginnings of wealth creation all start from savings. Someone can become wealthy from starting their business or investing in stocks. Both require planning, hard work, and savings — particularly in the initial stage.
Some businesses can jumpstart with a loan based on a solid, viable business plan. You don’t need as much money investing in stocks. Moreover, dividend stocks allow you to start earning a return right away. Initially, regular monthly savings will carry much of the weight of growing your wealth.
How long does it take to double your money?
Doubling your money only from saving is slow. Let’s say you’re able to save $500 a month. You’ll double your money in a month. But to double it again, it’ll take two months.
Double your money faster by earning interests. Let’s say you’re super conservative and decide to park a savings of $5,000 in a GIC/CD for five years. That’ll earn you an interest rate of about 2.2%.
According to the rule of 72 (calculated by 72 / rate of return), it’ll take more than 32 years to double your money to $10,000 if you keep earning a 2.2% interest rate on your savings. This is better than just saving your money, but only a little better. It’ll probably maintain your purchasing power in the long run from keeping up with the long-term rate of inflation.
Double your money fastest in stocks. Stock investing is one of the fastest ways to grow one’s wealth. According to the long-term average market return of 7%, you can double your money in a little over 10 years, approximated by 72/7% = 10.3 years.
You could do even better by selectively buying quality stocks at attractive valuations. Conservative stock investors who know their stuff should be able to get long-term returns of 10% or higher, which would imply doubling one’s money in about 7 years, approximated by 72/10% = 7.2 years.
Start earning a return from dividend stocks
You can start earning a return from dividend stocks right away. Most dividend stocks pay a dividend every quarter, but some pay every month, every half a year, or annually.
It’ll be similar to earning interest from GICs/CDs periodically, except that businesses are paying the dividends from their profits. If the business does poorly, it could reduce or eliminate its dividend altogether! That’s why investors need to be selective about their dividend stocks.
Choosing businesses that lead stable operations through market cycles is key. For example, Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) provides a safe quarterly cash distribution thanks to generating highly regulated or contracted cash flows from a diverse portfolio of high-quality infrastructure assets.
BIP has increased its dividend for 12 consecutive years. Going forward, it’s committed to increasing its cash distribution by 5-9% per year. I like everything about the quality dividend stock, except that it’s not trading at a bargain. It’s, at best, fairly valued.
Though, I suppose it’s alright to dip your toes in the water, if you want a piece of the wonderful business and start earning a 3.6% yield. Quoting Warren Buffett, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” BIP is certainly the former!
An investment in BIP today would likely provide long-term returns of about 8.6-12.6%, which should double one’s money in, at most, about +8 years.
Double your money faster with growth stocks
goeasy (TSX:GSY) has been an extraordinary growth stock. It more than doubled investors’ money in a short time. Since 2020, it has returned more than 180% — almost tripling investors’ money. If you had held the stock since 2011, you would have 21 times your money (annualized returns of +33% per year)!!
That said, the market sentiment was super negative on the leading Canadian non-prime lender during the pandemic market crash that witnessed a crash of 70% from peak to trough on the dividend-growth stock. It’s a prime example that illustrates investors need to hold quality businesses through volatility for long-term wealth creation. Investors must understand their stock holdings, diversify their portfolios properly, and be comfortable to add to their positions in market downturns to potentially create greater wealth!
In the early years of wealth creation, regular contributions from savings is key. The more you save, the better!
You can accelerate your wealth creation by investing in stocks for higher returns. However, stocks come with greater risk. On the surface, the stock volatility appears to be the risk. In reality, it’s investors’ reaction to stock volatility that could pose a risk — for example, selling at a loss (or for less than what a stock is worth) during a bear market when a stock has fallen a lot.
In the short term, stock prices move with the news or market sentiment. In the long run, they move with the fundamentals of the businesses. Both BIP and GSY fared well in the pandemic last year, actually GSY did so with flying colours. Therefore, the stocks have correspondingly set all-time highs this year. This doesn’t mean the stocks won’t fall substantially in a market downturn, though, as they did during the 2020 market crash.
If those sell-offs happen again, it’ll be time to review the businesses to determine if they’re temporary sell-offs. From what I can tell now, it’ll probably be super buying opportunities that’ll allow you to double your money sooner!
If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.Disclosure: As of writing, we own shares of BIP.UN and GSY.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
Get Exclusive Articles from me on Seeking Alpha
- Access my portfolio of high-quality U.S. and Canadian dividend stocks.
- Real-time updates of when I buy or sell from this portfolio.
- Get best ideas of the top 3 dividend stocks from my watchlist. Updated each month.