The Rule of 72
Halloween is a holiday we’ve never understood and probably feel a little too old for. Back in 2007, we thought our “deviled egg” costumes were s-e-x-y. You know what’s sexy now? I-n-v-e-s-t-m-e-n-t-s. Which is what we’re going to talk about today.
Forget ghosts or goblins or that time you tried to make a Guy Fieri costume cute. You know what’s really scary? What happens when you do absolutely nothing with your money.
Here’s the thing: saving money is just the first step. If your money is sitting in a savings account with an APY (Annual Percentage Yield) of less than 2%, your savings are actually depreciating in value with every passing second, because inflation is also hovering around 2%.
So the first step is to open a high yield savings account and move your savings to it, stat. This is a risk-free way to ensure your money doesn’t lose its value over time.
Now, let’s talk about all of the potential free money you could be making by investing. Meet the Rule of 72.
The Rule of 72
The Rule of 72 is a simple way to determine how long an investment will take to double, given a fixed annual rate of interest.
You just divide 72 by the expected annual rate of return (or interest rate), and you get a rough estimate of how many years it will take for your initial investment to double.
To break it down:
The stock market has a historical rate of return of around 8% when you leave your money in for long periods of time. If you had an extra $10K available to put in the market today:
72 / 8% return means that in 9 years, that $10K could double to be $20K
In another 9 years, that $20K could be $40K
In another 9 years, $80K
Catch our drift? And that’s without adding any extra money to it!
Doubling periods
Doubling periods refer to how many years it would take for your money to double. Using the Rule of 72, you can figure out how long the doubling period is on any investment.
So let’s take that high-yield savings account you’re about to open. If you put 10K in there, how long would it take to double at a 2% rate of return?
36 years! This is why we have to get educated about investing AND actually start doing it.
Would you rather:
Invest in the stock market with the potential for an 8% return and double your money in 9 years?
Keep all your cash in a savings account with a 2% return and double your money in....36 years?
How many doubling periods do you have left in your lifetime?
People say “time is money”, and it’s true. The more time you have, the more money you could have with virtually no extra effort. Investing your money is crucial to financial freedom, and it’s better to get started now than to wake up 10 years from now with no real assets to your name.
...because THAT would be scary.
If this feels overwhelming, we totally get it. We go over all of this in detail AND help you set up a simple investment system in the Wealth Circle.
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