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. I don’t want to lose everything by doing that. I’m not that dumb, I’ll just save in a savings account.”
So the first answer to educating yourself is to ask yourself: “Do I know what the Rule Of 72 is?”so” How will this affect me?”
What Is The Rule Of 72?
This Rule dates back hundreds of years. The Rule Of 72 first referenced by Luca Pacioli, sometime during the 15th century. This made it possible to understand how long it will actually take for money to double. {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? So, this is not exactly precise. One benefit of The Rule Of 72 is that you can assume it will compound yearly In all actuality it could compound monthly or even daily. To get a good idea here you go, there are Financial calculators that are very accurate.
How Does It 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. Will you be happy knowing you save? You are in all probability saying to yourself some people don’t save at all?
Follow me if you will.
So you’re in a savings account which, in today’s market, probably pays you somewhere between 0.2% if you’re like most people and maybe 3%, if you’ve got a lot of assets and your mortgage there, too. 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! Cool, huh?
By the way, if you’re a retired person, and you do have some assets saved up, but the market makes you nervous and so you only buy 3% CD’s, you’re looking at that same 24 years for doubling, IF you don’t withdraw anything, and IF the inflation rate is zero. Inflation for the last 200 years in the USA has averaged 3%, currently it is nowhere close to that. In all honesty 3% is no return at all, this is true in most cases.
Educating yourself about the stock market is going to be involved? Your involvement IS the answer to the first question. 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.