The Rule of 72 doesn't help with this task. Instead, you need to look at strategies like:. The best thing you can do is make your own retirement income plan timeline to help you visualize how the pieces are going to fit together. If financial planning were as easy as the Rule of 72, you might not need a professional to help. In reality, there are far too many variables to consider. Using a simple math equation is no way to manage money. You can reverse the Rule of 72 to work backward from your timing target.
If you want to double your money in five years, divide 72 by five. According to the Rule of 72, it would take about No, a stock split does not double your money. Your brokerage will automatically adjust the value of each share after the split. In a stock split, each share will be worth half as much. In a stock split, each share will be worth a third as much, and so on.
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Measure ad performance. Select basic ads. Consider zero-coupon bonds , including classic U. For the uninitiated, zero-coupon bonds may sound intimidating. In reality, they're simple to understand. Instead of purchasing a bond that rewards you with a regular interest payment, you buy a bond at a discount to its eventual value at maturity. As it moves closer and closer to maturity, its value slowly climbs until the bondholder is eventually repaid the face amount.
One hidden benefit is the absence of reinvestment risk. With standard coupon bonds, there are the challenges and risks of reinvesting the interest payments as they're received. With zero-coupon bonds, there's only one payoff, and it comes when the bond matures. While slow and steady might work for some investors, others find themselves falling asleep at the wheel.
For these folks, the fastest way to super-size the nest egg may be the use of options, margin trading , or penny stocks. All can super-shrink a nest egg just as quickly. Stock options, such as simple puts and calls , can be used to speculate on any company's stock. For many investors, especially those who have their finger on the pulse of a specific industry, options can turbo-charge a portfolio's performance.
Each stock option potentially represents shares of stock. That means a company's price might need to increase only a small percentage for an investor to hit one out of the park. Just be careful, and be sure to do your homework before trying it. For those who don't want to learn the ins and outs of options but do want to leverage their faith or doubts about a particular stock, there's the option of buying on margin or selling a stock short.
Both of these methods allow investors to essentially borrow money from a brokerage house to buy or sell more shares than they actually have, which in turn raises their potential profits substantially. This method is not for the faint-hearted. A margin call can back you into a corner, and short-selling can generate infinite losses. Lastly, extreme bargain hunting can turn pennies into dollars. You can roll the dice on one of the numerous former blue chip companies that have sunk to less than a dollar.
Or, you can sink some money into a company that looks like the next big thing. Penny stocks can double your money in a single trading day. Just keep in mind that the low prices of these stocks reflect the sentiment of most investors. While it's not nearly as fun as watching your favorite stock on the evening news, the undisputed heavyweight champ is an employer's matching contribution in a k or another employer-sponsored retirement plan.
Making it even better is the fact that the money going into your plan comes right off the top of what your employer reports to the IRS. You won't get a company match, but the tax benefit alone is substantial.
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By Ben Luthi. Ben Luthi has been writing about personal finance since , helping people understand how to make the most of credit card rewards and make smart financial decisions. Learn about our editorial policies. Reviewed by Chip Stapleton. Learn about our Financial Review Board. Key Takeaways The Rule of 72 is a simple way to calculate how long it will take an investment to double, based on the annualized rate of return. Investors can use the rule when planning for retirement, education expenses, or any other long-term financial goal.
For more accuracy, investors can use a logarithmic formula to calculate the time for an investment to double. In some situations, investors might want to use the Rule of 70 instead. Article Sources. Your Privacy Rights. To change or withdraw your consent choices for TheBalance. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.
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