Here's an interesting tid bit.
The Dow Jones Industrial average closed the year at 11,497 on Dec. 31, 1999.
The Dow Jones Industrial Average closed the year at 10,428 on Dec. 31, 2009.
(That's a 1,069 point loss in 10 years, or roughly a 10% decrease)
If you had invested $100,000 in a fund tied to the Dow Jone Industrial average over that period of time, your account would be worth roughly $90,000 after 10 years.
If you had placed that same $100,000 in a fixed rate financial tool earning just 5% interest compounded quarterly, your account would have grown to $164,362, or a 64% gain over the same period of time.
For years I have heard the so called "financial gurus" on radio and television saying that you have to put your money into the stock market if you expect to earn any decent returns. They also tell you to never own permanent life insurance, but to buy term insurance instead.
Because of this ill advised message, I am going to clear up why you should stop listening to these entertainers today. Here you go:
When mathematicians consider proven equations as I'm about to show you they consider it as "The Law". In other words it's been proven time and time again, and is never inconsistent.
Before we look at the mathematical "law", let's look at the investing in the stock markert law. You will see this statement or something very similar on every piece of literature you ever receive from any investment firm or securities licensed advisor.
"Past performance is no guarantee of future results" This statement is reqired by law, and basically means "Buyer Beware"!
This is what some people want you to base your entire financial future upon. Now let's take a look at the sound economic and mathematical equations on which I base my advice for people to build their financial foundation upon. I do believe in investments in the stock market at the right time for the right clients.
Here is the mathematical equation for "compound interest". This is the type of interest you earn in the financial tools we recommend through this ministry.
M = P( 1 + i )n
M is the final amount including the principal.
P is the principal amount.
i is the rate of interest per year.
n is the number of years (or months) invested.
In other words if you invested a certain amount of money into a financial tool earning a certain amount of interest compounded annually (or quarterly, monthly, etc) for a specifed number of years you could actually calculate exactly what your return would be at the end of that period of time. Here's an example of how this works:
Let's say that I have $10,000.00 to
M = 10000 (1 + 0.05)3 = $16,436. (That's a 64.3% increase with only a 5% interest rate)
You can see that my $10,00.00 is worth $16,436
The letter "n" can be changed to whatever the length of time that the interest is compunded, such as annually, quarterly, monthly, daily, etc. Most financial tools that we use compound quarterly instead of annually.
This is why Albert Einstein said "The most powerful force in the universe is compound interest".
Another mathematical equation is "The Rule of 72" which offers you a proven method of calculating exactly how long it will take for a certain amount of money to double in value. For example:
If you have $1,000 invested at 7% interest you know it will take 7 years for the number to double to become $2,000. Here's the equation to calculate this for yourself:
Years to double = 72 / Interest Rate
(Years to double = 72 divided by the interest rate earned)
It's easy to see that if you want trusted returns, you need to adhere to trusted equations. I don't know about you, but a guaranteed mathematical equation telling me exactly what I will have earned over any period of time is much more comforting than the disclaimer mandated by the government that basically says, buyer beware!
