The rule of 72
1. The money that you are saving and investing should compound. Compounding means that you leave the interest and gains and dividends in the account without withdrawing them.
2. Your money will double by the rule of 72. Divide the interest that you are getting into 72 and the result will be how long it will take for your money to double.
3. If you are getting 6% interest, then divide 72 by 6 (72/6) = 12 years for your money to double.
4. If you are getting 12% interest ( the average over the last 50 years in the stock market has been 11%) then (72/12) = 6 years for your money to double. This is what we are looking for!
5. If you are getting 12% interest, then $5000 put into an account when you are 30, will be $10,000 when you are 36, $20K when you are 42, $40K when you are 48, $80K when you are 48, $160K when you are 54 years old, $320K when you are 60, and $640K when you ready to retire at 66! Leave it alone and you are a millionaire by age 72.
6. The stock market will have good years (20% interest on your account) and bad years (-10% on your account), but all we are looking for is an average of 12%, and this can be had right in the Fidelity mutual funds.