How to double your money

You invest it at 1% for 70 years.

But that's just stupid.

Or 2.5% for 30 years,  or 4% for 18 years.

Is there a point to this?

Well one period is a lifetime, one a generation and one a childhood....

So?

Have you no poetry in your soul? Well how about this Mr Pragmatic:  they are roughly in the area of returns you might get from government bonds (gilts), corporate bonds and shares.

I'm not impressed - my financial advisor reckons  if shares return 7% then...

That's not real money - try knocking 4% off for inflation.

Oh - that's only 3% then. Even less than you are predicting.

I'm not predicting. And neither is he.  7% is one of the figures they have to use in their illustrations. 7% projected for 20years looks terrific. 9% [another mandatory figure] looks even better.

But that's meaningless surely - if you completely ignore inflation?

Yes

Figures in a landscape

It is useful to have a feel for expected returns in the financial landscape. Corporate bonds are expected to do better than government bonds, and shares better than both. The downside is that the risk of losing money is greater.  And 1%, 2.5% and 4% happen to be handy numbers when looking at the time it takes to double your money. 

The actual historical returns  of these three asset classes differ from a simple 1%/2.5%/4% split - but not by that much if you happen to pick the right 20year period. (In other words by picking the right start and end date you can usually get the outcome you want. Remember that  next time you see an advert  praising a product's fantastic performance).

So are you saying I should invest in shares?

I am saying that the chance of better returns come at a greater risk, that the only return worth talking about is your real (after-inflation) return, and if you can squeeze an extra 1% return a year it's well worth doing.

Didn't I already know that?

No - judging by the fact that all your savings  seem to be in a fund that just owns shares, the 7%growth illustration that so impressed you becomes ever more meaningless as inflation increases, and what little is left is being whittled away by the annual 1.5% service charge.

Does an annual 1.5% really make that much difference?

It could mean an extra 12 years of waiting.....

Because at 4% I double my money in 18 years; but if they knock 1.5% for annual charges it will take me 30 years?

You got it.