Monday, April 22, 2013

The ninth wonder of the world.


Have you heard of Rule 72?

Rule 72 is a formula to count how many years it takes for your money to double. For example, if you keep your money in an instrument that gives you something like 3% yearly returns (ie. fixed or mudharrabah accounts), and you want to know when your RM100 would become RM200, you just divide 72 by 3. The answer is 24, meaning it would take 24 years for your RM100 to become RM200.

It also gives you an insight of how fast your money will lose it's value. I mean, when your RM200 in the future will be of the same value with your RM100 today. 72 divides by the present inflation rate, for example 4%, equals 18. That means in 18 years time, for what you buy today at RM100, you would need to spend RM200 to get the same thing.

Just recall the price of a cup of coffee in our local restaurant some twenty years ago. How much was it? 60 sen? 70 sen? And what is the price now? RM 1.60, right?

Hence, a smart thing to do is to invest your money in an instrument that gives you a higher return than the inflation rate. If the instrument only gives you the same return rate as your country's inflation rate, it means your money doesn't grow in value! The value will remain the same.

Worse, if the instrument you choose gives you a lower return than the inflation rate. It means your money will shrink in value years from now!

However, do not be too greedy - remember, higher returns means it's a higher risk of investment. Make sure the risk you take suits your profile. Make sure your money is placed in a safe, LEGAL saving instruments!


(This article have also been published at www.facebook.com/HealthiWealthy)

2 comments:

Dunia Firdaus said...

Saya tahu rule 78

Mima said...

Daus, citer sikit.