Posted: 6/11/2011 3:47:28 PM
Originally Posted by spocsstocks:
Anyone who has anything to do with investments knows about the rule of 72. This means that you divide 72 by your interest rate. So if you have an interest rate of 6%, it would take 12 years to double your money. Keep in mind, this actually works well for fairly low interest rates, as the interest rate climbs the imperfections of the formula begin to show. Another important thing to note is that this is just for simple, annual interest. If the interest rate is compounded on a different time frame, you should remember to take that into consideration and adjust your timescale accordingly.
Me and my friend trade stocks at work and we both dollar cost average over the long haul. Basically your long term goal, in this case 7 years, your goal should be to double your money. Thats what we try to do double our money every 7 years. In this case you can see 7x10=70 (7pct return for 10 yrs) From the formula we gave you, you can see you need 72. to double your money. So in ten years you still havn't doubled your money. Therefore your return needs to be greater than 7% a year. If you ask us a good number it would be 10.2 to 10.5 pct a year. That way you would at least double your money every 7 years. If you can do better than that for a long period of time you should could consider yourself a good investor. Hope that helps.