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Question 1: "Why should I invest?" The underlying answer that most of us have to that question, even if we don't say it, "That's too risky. I know people who have nothing right now. Am I badly informed, I have a savings account."

So the first answer to educating 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 a long time. 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 in all probability 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}.

Now, is it accurate? Well, not exactly. The Rule Of 72 is a good general estimation if you assume that your interest compounds once per year, when actually it might compound monthly or daily – but if it does, that's only to your benefit. 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 figure you really are thinking like our hypothetical person at the beginning of this article, and you already know it is better than to invest in the NYSE, 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 take a look at this for a second.
So you're in a savings account which, in today's market, possibly 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 are part of the second group and you are earning 3%, you would take 72 divided by 3, you would get….ouch, 24 years for your money to double.

If you're in the former group and earning 0.2%, well, you're looking at having your money still double all right, and in only 3,600 years! astonishing right?

If the market is making you nervous because you are retired, only buying 3% CD's is going to have your money doubling in 24 years providing inflation is zero. 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.

What does this have to do with educating yourself about the stock market? This is the answer why you should be involved in the first place. Being involved and having an advisor to help you stay ahead of the game will keep your goals in perspective and help you support yourself and your family with a lot less stress.

 

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