Intelligent

Investment Pieces

Compound Interest – Einstein calls it "mankind's greatest discovery"!


Growing your money is a function of two things:

The rate of return you receive on your money multiplied by the amount of time (in years) you invest it .

Here's a quiz. Can you figure out the Rule of 72?

% Annual Return Number of Years Invested
If you earn a return of 2%... you’ll double your money in 36 years.
If you earn a return of 3%... you’ll double your money in 24 years.
If you earn a return of 4%... you’ll double your money in 18 years.
If you earn a return of 6%... you’ll double your money in 12 years.
If you earn a return of 8%... you’ll double your money in 9 years.
If you earn a return of 12%... you’ll double your money in 6 years.

Dividing 72 by your annual return, will tell how many years it will take you to double your money.

Cool, eh??

What does it mean for you? Let's do a little math

Let's say you plan on hanging up your skates when you turn 65. Let's also say you can make 9% on an all-equity portfolio – that means your money will double every eight years! Finally, let's say you are 25 years old right now.

If you are 25, and you invest $1,000 per year at 9% until you are 65, you will have $337,000 by the time you reach age 65. 

Here is the fun part!!! If you leave the money alone for only eight additional years, you would have $684,000. Wow wow wow!

 

"Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do."
– Mark Twain