How many years you reckon it would take to double your investment? Look no further than the rule of 72.
Let’s say for argument’s sake, you invest R10, 000 at 8% per annum in a fixed term deposit at your bank.
But you want to cash it in once your R10, 000 turns into R20, 000. So before signing up for a 10 year fixed deposit, you obviously want to first do your homework. No point in investing for 10 years when 5 will be better.
Simply take 72 and divide it by 8. Your answer is 9 years!
The rule isn’t 100% accurate but it cuts as close as the razor blade I’ve been using for the past 3 weeks. In other words, it’s a very good estimate.
But did you know…
You can use the same method to estimate the halving of your money’s buying power?
Taking the example above, imagine leaving R10, 000 in your savings account earning no interest at all. At the same time inflation is running at 6% a year.
Now if you’re not familiar with inflation, it’s simply a term which has to do with the rising cost of living. Say a loaf of bread costs R10 today. If inflation is running at 10% per annum, then that same loaf of bread would cost R11 next year.
Why is this important to you?
Well if all you have is R10, and your R10 isn’t growing (because it’s lying in your savings account earning nothing); then next year you’ll end up buying half a loaf instead of a full loaf.
So getting back to our example:
- R10, 000 left in your savings account earning no interest,
- with inflation running at 6% per annum means
- Your R10, 000, 12 years from today, will be worth what R5, 000 in your hands today would be.
You may as well blow the R10, 000 today while it’s still worth something.
Did you get that?
You’re being robbed without realising it. What you don’t spend today is worth less tomorrow.
Can you see why investing your money is so important?
And it doesn’t help earning 6% interest when inflation is also sitting at 6%. This simply means your R10, 000 will still only be worth R10, 000 12 years from now. At the very least you want your R10, 000 to have at least the buying power of R11, 000 in today’s money 12 years from today.
If what I’ve said above has disturbed you, then I’ve achieved my goal. You can either pop in at your bank or you can leave your details below and we’ll have someone call you.
We can also help you with this if you want?
By now hopefully we’ve persuaded you that we’re passionate about the subject of insurance and investments.
The majority of our personal clients are invested at Allan Gray. Of course, the major drawback with this is the fact that they have a minimum monthly investment amount of R500 and/or a minimum lumpsum investment amount of R20, 000.
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Until next time.
The InsuranceFundi Team