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Tripling your money
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THE SCENARIO
Last week I was talking with a guy, Jim, at a party about his friend who's a very successful real estate developer who's raising money to start a new project.
Jim has some money to invest, but is unsure whether an equity investment (versus a cash flow investment) is what he's looking for. If he were to get into an equity investment, he'd want to at least triple his money over the course of the next 8 years.
The question: If Jim invests $100,000 and triples his money in 8 years, what's his rate of return? Assume monthly compounding.
THE SOLUTION
First things first, make sure the calculator is using 12 Payments per Year.
N: 96 (Jim wants to triple his money over the course of 8 years)
I/YR: (this is what I'm trying to find)
PV: -100,000 (Jim's investing $100,000)
PMT: 0 (This is an equity investment, not a cash flow investment, and it doesn't distribute money month-to-month)
FV: 300,000 (Jim's $100,000 investment triples over the course of 8 years)
If Jim triples his money in 8 years, his annualized rate of return is 13.81%.
What do you think? Would an investment that triples your money in 8 years appeal to you? What if your money was out of your hands and unavailable for that time, and didn't provide you month-to-month income? Can you think of investments you're currently making that resemble that setup? Let us know in the comments!
