"Compound interest is the greatest force in the universe" Albert Einstein.

[Swede]

Whether he said it or not,it's true. The "RULE OF 72" is true. Divide the interest that your money is making by 72 equals the number of years your money will double. Start early.

[Deja Q]

1. But it's good only if you put it in stock for a company that's not going to cheat and run with it...

How much do we trust our investors? :evilgrin:

[Swede]

3. You be the investor, Hypnotoad.

Trust no one,especially a broker. They make you broker.

[Deja Q]

11. I ain't breakin' anyone, especially if it's a lady.

:rofl:

[Hosnon]

2. I agree (both that compound interest is very powerful and that the Rule of 72 rocks).

As a side note, the interest is divided into 72, not by 72.

[Swede]

4. I may have worded it wrong.

Invest $1000 for ten years,look at a good mutual fund that's getting you 10-12% compared to a savings account.

@ 4%= $12006
@10%=$15937
@12=$17548

[pitohui]

5. so many errors here where do you begin?

as you know, albert einstein didn't say it, this is a famous example of the rule that all neat sounding quotes end up getting attributed to the most famous person of the day

the day when you could find a mutual fund getting you 10-12 percent annual interest is long gone, the 90s have been over for some time now

most of the time the market doesn't do anything, see under the thirties through 1982 for example

it's fine to fantasize that we can do nothing except invest a trivial sum of money and be rich but those of us who have actually lived long enough to do this can tell you that it don't work, sunshine

you had to be born and start investing at exactly the right time and bring your money out again at exactly the right time (spring 2000 or at least get it out before 911) or the whole thing blows up

alas, most of us did not have the opportunity to time the market so well

plenty of people did everything right and invested in good mutual funds and had tons of money and boom! along comes 911 and enron, and they're back in the workforce again, all their investing and caution gone for naught

there is no such thing as a sure thing, and the claim that anyone can be a millionaire by starting early enough and buying the right fund is one of the cruellest -- it is one of the claims that the righties use to "prove" that anyone who is poor in old age is stupid and deserves to die -- "smart" people who "think ahead" and "start early" don't need social security because they are so damn smart

i for one am damn sick of it

start early, save for 3 decades, as i have, in good conservative funds and investments, and you still don't have enough to retire on, inflation makes sure of that

think about it logical, if it was that easy to get ahead of the game, there would be NO REASON to have social security or a social safety net for anyone except the drug addicts and other mentally handicapped losers

just ain't the way the world works

i believed it, i followed the rules...and no...i have reached the goal i set in my retirement account all those years ago...trouble is...i couldn't possibly live on it in today's economic realities...and this with a paid-off house

forgive the rant, but i'm tired of being lied to and this is one of the big lies, i would not have scrimped and saved so much if i had known it was all for nothing

[StrongBad]

7. It's still not that hard to make 10% a year in the market

The catch is that you have to be financially literate enough to know how to make money whether the market is going up or down, which is entirely possible and not that difficult intellectually, but does take a lot of hard work and study initially.

That being said, because such secrets (for lack of a better term) of money making seem to be known only by those in the investor class, regular middle-America folks do not have the proper education to take advantage of them, so I do not ascribe to the right wing logic that it's your fault if your poor.

It is my opinion that a little bit better financial education in this country for all people would benefit society as a whole immensely.

[Swede]

9. You do realise that the market is over 13000 AFTER 911.

Google search,there are tons of funds making 15% since that day.

[Swede]

10. P.S. at 15% my money doubled in under 5 years.

I ain't rich---yet.

[hfojvt]

6. the rule of 72 is only an approximation

suppose you got 72% interest on a $100 investment. By rule of 72 your money should double in 1 year. However, after 1 year you only have $172 not $200. Suppose you get 36% interest. Rule of 72 says 2 years, but multiplying only shows $184.96 after 2 years. Try 18%. After 4 years, you only have $193.88 At 4% interest you have $202.58 after 18 years, not $200.

[Swede]

8. It is a quick benchmark.

A financial calculator is much more accurate of course,it will take into account interest fluctuations during a year.

[pokerfan]

12. It's important to know its limitations

The real formula is:
t = ln(2)/ln(1+r)
t = 0.693147/ln(1+r)

You don't need a financial calculator. Most scientific calculators have a natural log function.

The approximation is that ln(1+r) approaches r for small values of r. Therefore the formula becomes:

t = 0.6931/r

But most real world rates aren't small enough for the approximation to be valid so instead of a Rule of 69 (heh!) which would be valid only for very small values of r, we have Rules of 70, 71 and 72. The Rule of 72 is most accurate for interest rates of 8% and 9%.

It's not a bad rule, but you need to know its limitations.