Few things in life are as underestimated and powerful as compound interest. No other investment factor can provide for the investor quite like compound interest. It is so incredible that the one and only Albert Einstein called it “the 8th wonder of the world” and yet so many don’t understand how and why to use it. Maybe one good way to understand it is by real in your face numbers! So how do we do that? Simple, you use the best formula known to man! The rule of 72. We use that to understand how long it will take to double your money. I will get into that calculation below but just take a moment to think about the power of numbers. That simple… I think.
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Possibly the most important deciding factor in getting into an investment is the return. Sure, everyone should look at risk. Sure, everyone should look at what the opportunity cost could be. And sure, everyone should look at their current situation, but what is it that everyone immediately wants to know and should understand prior to making an investment? Return, or what they believe to be said return. It is impossible to predict the future, but if you don’t do what you can to research, plan, and have a best estimation (guess really) then are you even trying? You could just be throwing darts at the wall and hoping to get a great ROI. Unfortunately, that wouldn’t last you long even though it would be a lot of fun.
Rule of 72! Numbers are fascinating. Numbers are the universal language. There aren’t an awful lot of subjects that have been as studied and perfected. Formulas have been found and proofs conducted time after time. We teach it to the new generation every day, well at least we should but then again it may affect someone’s feelings if they can’t figure out the solution! Simply divide 72 but the ROI or Projected ROI you think could happen to find the amount of time it will take to double your starting investment. For example, if you expect an 8% return on average you divide 72 by 8 to find that it will take 9 years to double your investment. If you can get 12% you will only need 6 years. Etc…
Until next time, keep swinging and never stop chasing.