Compounding and Investment Types

By Rich Hoag - What returns best?

Rule of 72

- Time Required to Double your Money

- Based on Rate of Return (Interest) of the investment

- 72 / % Rate of Return = Years to Double

Types of Investments

The three investment asset types include: (1) Savings Account, (2) Bonds, and (3) Equities.

Savings Account

- Local Bank

- Loaning your Money to the bank

- Pays Very Low Rate of Return

- Very Long Time to Double your Money (7,200 Years @ 0.01%)

Bonds or Fixed Income

- Loan to a Company, Municipality, School district, or Government

- Rate of Return is Fixed/Constant

- Pays about 400 times More than a Savings Account

- Medium Amount of Time to Double your Money (18 Years @ 4%)

Equities (or Stocks)

- Ownership in a company

- Rate of Return Varies and Can Be Negative

- Can Pay 900 to 1,000 Times more than a Savings Account and 2.5 Times more than Bonds

- Short Amount of Time to Double your Money (8 Years @ 9%)

What's Next On Investing?

Next Story: Roth IRA vs. Traditional IRA

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