| T.R | Title | User | Personal
Name | Date | Lines |
|---|
| 927.1 | "investing" is hard | SOLVIT::CHEN | | Tue Oct 17 1995 16:20 | 6 |
| Yes. And you are right. Welcome to the magical power of compounding!
Now, trying to select THE RIGHT "vehicle" to get you where you want to
go is a much harder task. :-)
Mike
|
| 927.2 | rule 72 works | MSBCS::HURLEY | | Tue Oct 17 1995 16:24 | 4 |
| yup the ol rule 72 is a quick way to get an idea of how much money you
can save over a time/% return. Lots of software out there that can
break it down to the Penney if you want though. Rule of 72 does not
take into consideration taxes and inflation though.
|
| 927.3 | thanks! | DECWET::JO | Mary had a little lamb, with mint jelly. Dot Warner | Tue Oct 17 1995 19:38 | 11 |
| thanks! it made sense to me, just wanted to make sure
it wasn't something he made up.
without the rule anyhow it makes sense that a vehicle with a higher
percent of return would yield more. it's just makes it a little more
concrete as to how such a vehicle would perform, if you found one.
so the goal then is to find ones that will come close to delivering
that kind of performance for your money.
jo
|
| 927.4 | Its a great rule to live by | MIMS::KINSER_J | | Tue Oct 17 1995 20:01 | 6 |
| This is also why companies like PFS and WMA exist. They talk to
alot of people who don't know anything about the power of compound
interest. Once they show this to people who have not seen it, it really
makes people want to start saving their money for the future.
Jeff
|
| 927.5 | thank you | DECWET::JO | Mary had a little lamb, with mint jelly. Dot Warner | Wed Oct 18 1995 13:51 | 7 |
| thank you all for your responses.
we certainly learned a lesson there. it makes sense that a high
interest vehicle will yield more but presented that way, it's
concrete and eye-popping reality.
jo
|
| 927.6 | | MSBCS::HURLEY | | Wed Oct 18 1995 14:22 | 1 |
| and if you can tax defer your investments it multiplies even quicker..
|
| 927.7 | The OTHER rule | SOLVIT::CHEN | | Wed Oct 18 1995 16:32 | 5 |
| re: Mary,
Higher return generally also translate into higher risk and higher
volatility. Make sure you are taking on the level of risk that you are
comfortable with.
|
| 927.8 | Take inflation into account | IROCZ::REUTHER | | Fri Oct 27 1995 13:23 | 17 |
| As .2 mentioned, you need to consider inflation. I believe the
rule of 72 can also be used to determine the effect of inflation as
well. If you assume 4% inflation, then 72/4 = 18, says that your money
will half its buying power in 18 years. Is this a correct use of this
rule? If this is correct, than in .0 when you say your 1k investment goes
to 8k in 18 years means that it really would have the buying power of 4k.
So, it would seem that a better equation for the rule would be:
72/(return rate - inflation rate)
In your example this would be:
72/(12-4) = 9 years to double your buying power
Tom
|
| 927.9 | | FX28PM::SMITHP | Written but not read | Fri Oct 27 1995 15:27 | 6 |
| My college finance professor also told us about the '7' rule.
If you don't double your money every 7 years (10% per year) you
aren't making money.
|
| 927.10 | | VAXCPU::michaud | Jeff Michaud - ObjectBroker | Fri Oct 27 1995 19:12 | 9 |
| > If you don't double your money every 7 years (10% per year) you
> aren't making money.
Actually it's about 9.1% per year due to compounding :-)
Of course once again inflation is the big factor. 9-10% a
year will actually lose you money when we have double digit
inflation (I remember earning 15% just in a money market
account because inflation was in the double digits) ....
|