Follow on Google News News By Tag Industry News News By Location Country(s) Industry News
Follow on Google News | Net Worth Advisory Group in Salt Lake City, Utah, Describes the Rule of 72The Rule of 72 is a mental shortcut to estimate the effect of compound interest. Compound interest is powerful; make sure it works for you and not against you!
Years to Double = 72 / Interest Rate For example, if an investor currently has their nest egg invested in certificates of deposit (CDs) yielding 2%, it will take that individual 36 years (72 / 2) to double their retirement account. By comparison, if the person invested in a diversified portfolio earning 8% over time, their funds would double in 9 years (72 / 8). The Rule of 72 is useful for understanding the importance of maximizing returns over time. For instance, if a 42-year old hoping to retire in 24 years at age 66 obtained a 6% annual return over this time span, funds would double twice (72/6 = 12 years to double; 24 years until retirement / 12 years = 2). Thus, a $100,000 investment now would be worth $200,000 in 12 years, and $400,000 by the time she retired. Alternatively, if the investor was able to achieve an annual return of 9%, funds would double three times (72/9 = 8 years to double; 24 years until retirement / 8 years = 3). This investor’s $100,000 investment would be worth $200,000 in 8 years, $400,000 in 16 years, and $800,000 at retirement. In this case, an increase in return from 6% to 9% allowed the investor to double their nest egg by retirement. The Rule of 72 can be applied to anything that increases in value: • Inflation – If inflation averages 3%, your money will lose half its value in 24 years (72 / 3). • Long-Term Care – If the cost of long-term care increases by 4%, it will be twice as expensive in 18 years (72/4). • Debt – If your credit card charges 24% interest, you will owe twice as much in 3 years! • Economic Growth – If America’s gross domestic product grows by 3% per year, the size of our economy will double in 24 years. Compound interest is powerful; make sure it works for you and not against you! To learn more about Net Worth Advisory Group visit http://www.networthadvice.com About Net Worth Advisory Group Net Worth Advisory Group is a fee-only financial planning firm in Salt Lake City, Utah. They are a member of the National Association of Personal Financial Advisors (NAPFA) and their advisors are Certified Financial Planners. All Net Worth Advisory Group advisors accept a fiduciary responsibility to always act in their client's best interest. Learn more at http://www.networthadvice.com. Contact Info Visit Net Worth Advisory Group's home page and view their blog at http://utahfinancialadvisor.blogspot.com. Their office can be phoned at (801) 566-0740. End
Account Email Address Account Phone Number Disclaimer Report Abuse
|
|