Taking control – Time to learn about the Stock Market
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Don’t even go there, the question you should really be asking is: “Why should I invest?” The reality is that most of us have the same question, even if we don’t say it, “That’s too risky. There are people I know that have lost everything doing that. I’m not that dumb, I’ll just save in a savings account.”
So the first answer to calming yourself is to ask yourself: “Do I know what the Rule Of 72 is?” and “How does it affect me, anyway?”
What Is The Rule Of 72?
The Rule Of 72 goes back at least many hundreds of years. It (The Rule Of 72) was referenced by Luca Pacioli, an Italian mathematician, sometime during the 15th century as a convenient way to determine how long it takes your money to double, assuming you know the interest rate it earns. {Luca didn’t explain the rule much, meaning it probably goes back even further than that, but the principle still holds true today}.
{Here’s an example: start with any amount of money, let’s say 0.00 to be simple. You invest it at 10%. Using the simplest of math, you take 72 and divide it by 10, and you get the number 7.2, which means your money will double to 0.00 in 7.2 years}.
{If you have 0.00 and you invest in at 7.2%, you take 72 and divide it by 7.2, and you get the number 10, which means your money will double to 0.00 in 10 years.
The same exact principle is true if you start with 0.00 or 0,000.00. That’s all the harder it is}.
Do we concur? Well, not exactly. Using The Rule Of 72 the assumption is that compounds once per year, smart investors know compounding could happen weekly or daily. The general idea is this for a very accurate answer you should use a financial calculator found on www.uscertifiedfinancialplanner.com.
How will this affect me, anyway?
Let’s assume you really are thinking like our hypothetical person at the start of this article, and you “know better” than to get into the stock market, so you just dump some money every month into a savings account. Is it enough that you save doesn’t that make you feel comfortable knowing that some don’t save at all?
Let’s see.
So you’re in savings account which, in today’s market, possibly pays you somewhere between 0.2% most are getting 3%, all of your assets and of course your mortgage. If you’re in the latter of those two groups and earning 3%, then we take 72 and divide it by 3, and we get….to have your money double in 24 years. Ouch! I think you could do much better.
If you are the former and this 0 is what you are earning.2% yeah this would be great if you are looking to double your money in 3,600 years! Isn’t this great?
Please understand that 3% CD’s are great but when you think about the fact that with inflation at zero your money will not double for 24 years. Even though that inflation rate is pretty close to the truth right now, it’s nowhere close to normal, since the average inflation rate in the United States is around 3% for the last 200 years. In all honesty 3% is no return at all, this is true in most cases.
How will you apply this knowledge to the stock market? It is the answer to the first question about why to be involved in it at all. Be Proactive, unnecessary risk is not needed, working with someone who know what they are doing can help you stay ahead of the curve and avoid having to work a lot longer then planned.
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