- Posted April 25, 2012 by
This iReport is part of an assignment:
In need of a Money Coach?
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My Ten Sense: How to make your money double for retirement
When I spoke to a group of college freshmen yesterday, one of the students asked me if a financial advisor was correct that if he invests $1,000 at the age of 18, it would grow to $500,000 by the time he retires.
I initially said, "no" the financial advisor was incorrect. But then I decided to use the example to explain the rule of 72 that financial advisors use to make predictions on how much money an individual could have for retirement.
So I turned to the whiteboard behind me and found a marker and began to explain how financial advisors use the rule of 72 to determine how many times your money will double before you retire. I told the students that financial advisors like to use 8 percent as the average interest your investments will earn over time and how the 8 percent interest rate is divided into 72 to determine how many years it will take for your money to double.
I wrote the equation 8 divided into 72 on the board and asked the students what the solution is, which was 9. So that means every 9 years, your money will double if your investments are averaging 8 percent interest.
Then, I led the students in an exercise to test the original financial advisor's theory that if one of them invested $1,000 at age 18, it would grow to $500,000 by retirement based on an 8% interest rate.
See the exercise I took the students through to find out if $1,000 can grow to $500,000 by retirement and also how a 24-year-old can have a half million by only saving for 12 years on my blog, www.mytensense.com.