How Long Will It Take To Double Your Money?
If you’ve ever wondered if you are in a position to actually grow your money, there’s a simple test. Take the number “72” and divide it by the rate of return you’re getting. For example, if the interest rate is 2%, then the number of years it would take to double your money is 72 ÷ 2, or 36.
The “Rule of 72” is a simple formula that can yield powerful insights. For example, Canadians are not getting paid very much to hold cash. The average bank savings account in Canada is paying 0.83%. At today’s average savings account interest rate of 0.83%, it would take 87 years to double your money
Some are paying a bit more, some a bit less, but by and large, bank accounts aren’t the way to grow your savings. They are good for security and for quick access to cash, but not much else. However, by investing at least some of your savings, you can grow your wealth.
Last year, many Canadians decided not to invest. Market turmoil from late 2008 and early 2009 created a deep mistrust, and a sense of fear. However, from the month of March 2009, the markets staged one of the biggest comebacks in history.
The key is to remember that investments benefit from time, and from playing the averages. In the short term, investments such as equity and balanced mutual funds can go down. Over longer periods, the results have generally been reasonable.
The 15-year average annual return for a Canadian equity-focused balanced mutual fund is 6.77%. Using the Rule of 72, with a 6.77% return, you would double your money in 10.6 years. The lesson from this example is important: even taking into account two very serious stock market downturns in the past 15 years – the dotcom bubble burst and the credit crisis of 2008-2009 – balanced funds delivered in the long term. It pays to be an investor.
Tags: Investments
This entry was posted on Thursday, March 4th, 2010 at 9:21 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
