The Rule of 72 is a fun math equation that is easy and always true. Take the number 72 and divide it by the annual return you expect to get and it will tell you how long it will take you to double your money; for example, 72 divided by an expected 8% annual return would allow you to double your money in 9 years. With the stock market being so strong since 2009, investors owning stocks have doubled their money much faster than 9 years.
What is the cost of being conservative in a strategy such as a bank CD, short-term fixed annuity, or low yielding bond? If the rate or yield is 2% it will take you 35 years to double your money. People without children today could easily be grandparents by then! For many people striving to grow their assets, these strategies take way too long, especially when you consider inflation.
Investors who feel they need to protect themselves from a future stock market crash, but can’t settle for such low rates should learn more about indexed annuities. These are products that generally require about a 6-year commitment of your money, but can protect you from losses while allowing you to participate in a healthy portion of market gains. Utilizing a strategy such as this may allow you to confidently take additional risk on other parts of your portfolio, or feel a little better about accepting really low rates or yields on money you need to keep more accessible. These products can be complicated and our office can assist you in making an educated decision.
As always, we hope you find the Weekly Market Review both informative and interesting.
Have a great week!
Trevor N. Coe, CFP