I wrote last week about How to Double your Money Every 7 Years, here’s more evidence of how and why.
Golden Rule of 72
There is the rule called the Golden Rule of 72 I want to introduce to you. It explains how investing money can and will double in value from the original amount. This rule is directly related to the rate of return the investment yields. In the previous article, since we know the standard stock market rate of return of 11%, we take the golden rule of 72 and divide it by 11 and that yields an answer of 6.5455. Basically, this tells us that the original money investment will double every 6.5 years according to the rule. Basically, take your return and divide it by 11 and you will see how long it will take for your investment to double.
If the market rate of 11% continues for the future, an original amount of money will quadruple in value after 13 years (6.5 years x 2) to continue on the path. For example, an initial investment of $1,000 would be worth $4,000 in 13 years with a ROI of 11%. This is precisely why it’s important to get started earlier with investing to provide as much time as possible for the investment to grow with compound interest.
Since we now know this magical formula and how powerful it is, why aren’t more people taking advantage of this knowledge? If everyone knew about this, then why don’t more people use this information and invest? The first reason stems from the want to understanding investing. Beyond the traditional answer of not wanting to understand or spend the time to understand, there are other potential reasons out why people aren’t realizing a higher ROI in their lives and portfolios.
There are three specific reasons why folks aren’t better off:
- Spend today, Don’t Save for Tomorrow
- Timing the Market – Too Difficult
- Too many Fees
I’ll dive into these areas next week and how to solve for these reasons,
Enjoy your Weekend!
Alex Richwagen is an investment research analyst. Any of his recommendations are that of Mr. Richwagen, the information presented by him is the opinion of his research. All investment decisions are your choice and should be based on your own analysis.