How Long Will it Take You to Double Your Money?
This week, Craig Siminski, of CMS Retirement Income Planning, shares an article explaining how to determine the real rate of return on your the investments:
Before making any investment decision, one of the key elements you face is working out the real rate of return on your investment.
Compound interest is critical to investment growth. Whether your financial portfolio consists solely of a deposit account at your local bank or a series of highly leveraged investments, your rate of return is dramatically improved by the compounding factor.
With simple interest, interest is paid just on the principal. With compound interest, the return that you receive on your initial investment is automatically reinvested. In other words, you receive interest on the interest.
But just how quickly does your money grow? The easiest way to work that out is by using what’s known as the “Rule of 72.”
Quite simply, the “Rule of 72” enables you to determine how long it will take for the money you’ve invested on a compound interest basis to double. You divide 72 by the interest rate to get the answer.
For example, if you invest $10,000 at 10 percent compound interest, then the “Rule of 72” states that in 7.2 years you will have $20,000. You divide 72 by 10 percent to get the time it takes for your money to double. The “Rule of 72” is a rule of thumb that gives approximate results. It is most accurate for …
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 22 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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Securities and investment advisory services offered through SagePoint Financial, Inc. (SPF), member FINRA/SIPC. SPF is separately owned and other entities and/or marketing names, products or services referenced here are independent of SPF.