Investors aim to make their money grow by harnessing the power of compound interest. Given time that power can be an impressive force which does magical things.
Like doubling your money without you having to lift a finger.
In fact, with the right investment products, it’s not about whether you can double your money but how quickly you can do it. There is a well-known formula for working out how long that will take at a given fixed rate of return. It’s called the rule of 72.
The rule of 72 is a very quick rule of thumb which starkly highlights how different interest rates can radically affect the growth of your savings.
It goes like this:
72/interest rate = number of years it will take for an investment to double
It’s worth applying the rule of 72 to interest you are earning on your savings to see how you are doing. It might make you think differently about what you do with your money. For example:
- If you have savings earning 1% interest it will take 72 years for it to double
- Up the interest to 3% and your money will double in 24 years
- With interest of 6% doubling is cut to 12 years
- With interest of 10% it will take just 7.2 years to double your money
If that doesn’t show why sticking your money in a bank savings account is a bad idea, I don’t know what does! Bank rates are still appallingly low wherever in the world your savings are. In the USA, UK and Europe for example (UK), it’s impossible to find a fixed rate account with the big five banks that pays over 1% right now. High yield accounts might offer better rates, maybe as much as 3%, but that still gives you a significant wait time before your money doubles.
Which is why investing in the stock market is something that everyone should consider in order to get the best out of their savings. While some people feel comfortable with the concept of investing in stocks and shares, many are extremely wary of the idea and don’t see themselves as ‘that kind’ of investor. However, the truth is that investing in the 21st century is something that is accessible to everyone and can help investors achieve an annual return which is much better than any bank can offer without taking undue risk.
Did you know, for example, that the average return for stocks in the S&P 500 index over the last 90 years is 9.8%, or 7-8% when adjusted for inflation. Which is in the ball park for doubling your money in 10 years.
If you are in the ‘don’t see yourself as a market investor’ camp and keep your savings in the bank, I’d love to talk you through how you can build wealth much more effectively. When working with clients who are wary of market, I take the time to understand exactly what their concerns about investing in the markets are and use tried and tested methods to assess the amount of risk they are comfortable with. I can then recommend products that respect their tolerance to risk. I never pressure clients to invest, and especially not outside of their comfort zone.
Do contact me at jregan@infinitysolutions.com if you’d like to find out how to double your money and reach your financial goals in the shortest time frame possible.
Senior Financial Consultant
When I provide a financial consultation, my approach is to treat my client like a business entity I am in collaboration with to achieve their goals and objectives. Through a combined client/consultant effort I seek to improve their strategies, stressing that actions without positive results are costly and a setback to their financial futures. My priority is always a successful end result.
