Rule of 72
- By Trusha Desai
- •
- 21 Sep, 2015
- •
September 21, 2015
Do you know how long it takes to double your investment at a given compound interest? Do you know that if you are trudging along at an interest rate that is marginally above inflation (if that), there is no scope of ever doubling your investment? Do you know that what you see is not what you get when it comes to investments?
If in the Magical Dream World of Investments you earned 12% compound interest, when would you double your investment? This is when the famous Rule of 72 comes in. You need to divide 72 by the rate of interest, in this instance 12, ie 72 / 12 = 6. It will take 6 years to double your investment. This appears to be a fascinating piece of investment: and we wonder, is it risk-free? What are the commissions, fees and other charges? What about capital gains tax or tax on interest income or dividend withholding credits? Actually, the interest we just earned, that mammoth rate of 12% is now going to be taxed at a high rate (based on your income for the year), for interest income has the highest tax rate. Does that investment still look good? Does a 12% return actually suggest that there is a 12% return?
Of course, you could always attempt to earn this rate of return in your TFSA or RRSP. Then the tax implication would not enter into the picture, and you could prune your roses.
We do not provide financial advice that is risk-free: we do not provide financial advice, period. We provide a financial opinion. Please visit our website #TrushaDesai.com
If in the Magical Dream World of Investments you earned 12% compound interest, when would you double your investment? This is when the famous Rule of 72 comes in. You need to divide 72 by the rate of interest, in this instance 12, ie 72 / 12 = 6. It will take 6 years to double your investment. This appears to be a fascinating piece of investment: and we wonder, is it risk-free? What are the commissions, fees and other charges? What about capital gains tax or tax on interest income or dividend withholding credits? Actually, the interest we just earned, that mammoth rate of 12% is now going to be taxed at a high rate (based on your income for the year), for interest income has the highest tax rate. Does that investment still look good? Does a 12% return actually suggest that there is a 12% return?
Of course, you could always attempt to earn this rate of return in your TFSA or RRSP. Then the tax implication would not enter into the picture, and you could prune your roses.
We do not provide financial advice that is risk-free: we do not provide financial advice, period. We provide a financial opinion. Please visit our website #TrushaDesai.com
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