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The Rule of 72

I have always assumed that everyone knows the Rule of 72 when it comes to investing or saving your money. But having spoken with a number of people recently, I have found that my assumption is wrong. So many of them had never heard of it. So for those that don’t know or are new to saving and investing, I will explain it here.

The Rule of 72 is pretty simple to calculate. It says that if you want to know how many years it will take you to double your money at a given interest rate, you just divide the interest rate into 72.

Here is an example. If I earn an average annual 6% in the stock market, it would take me 12 years to double my money. If I earn 10% it would take me 7.2 years. 

If I only put my money into a savings account and the interest rate is 1.45%, it would take me 49.65 years to double my money. This shows you pretty quickly that investing in a savings account isn’t going to build wealth rapidly. But if you want a safe investment, savings accounts are fine.

When you invest in the stock market, it is risky for a couple of reasons. You can lose a lot of money if the market tanks like a lot of people did in the mortgage meltdown. They lost because they got nervous and pulled their money out at a big loss. So they ended up not being in when the market went back up. Your money invested in the market is not FDIC insured. 

Your savings account is FDIC insured up to $250,000. per depositor per bank. If you have a joint account with your Hubby, you are insured up to $500,000. on that account.

So each person or family has to decide if they want risk or not. Risk builds wealth quickly. Not taking risk takes many years to build wealth. Do what you are comfortable with.

Anyhow this is how to calculate how long it will take to double your money using the Rule of 72.

I hope you all have a fun and safe weekend!

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