Web Strait’s Finance

In finance, the Rule of 72 is a simple but powerful method for estimating an investment’s doubling time. That is for finding out how long your investment will take to double your money. It’s based on the compound interest as opposed to the simple interest.

For e.g., if you have put your $100,000.00 into an investment. And you estimate that it will give you about 8% of the annual return rate. So, the question here is “How long it takes for making your invested $100,000.00 to be $200,000.00?” You may now intend to take out a scientific or financial calculator for getting the answer. But if you know about the Rule of 72, then you should be able to get the correct answer in just few seconds even without a calculator.

As I mentioned above, Rule of 72 is simple but powerful. So, the answer is quite strait forward, 72 / 8 = 9 years. That means you will need 9 years for making your $100,000.00 to be $200,000.00. How about when the annual return rate is 10%? Indeed, it’s even easier to get the correct answer. The answer is 72 / 10 = 7.2 years.

The following table estimates the number of years to double your money by applying Rule of 72.

Note: The rate of Interest or Return that corresponds to each type of Investment is based on the estimation and circumstance in Malaysia.

As you can see from the table above, you need 36 years to double your money in a Saving Account!!! While Fixed Deposit account needs 18 years to do it!! This is absolutely unable to cope with the annual inflation rate. In other words, your money in Saving or Fixed Deposit Account is depreciating over the years. Hence, you should never “rent” all of your money to bank when the rates given by bank is relatively low.

“What are the differences between wants and needs?” How likely your answer would be? Sincerely, it would not be too important if you can get the correct answer. You would probably answer such question correctly; even a school boy may know the answer.

Basically, “needs” refers to those things required for surviving. While “wants” refers to something that can improve our life quality(Not required for surviving). But, “How far that you are able to differentiate between wants and needs in your real life?” Once upon a time, there were a lot of people who queued up since 6am morning or even earlier for buying the “limited edition” Hello Kitty dolls. Hence, I dare not to say that the Hello Kitty dolls wasn’t a need for them(Even though I know that we won’t die without the Hello Kitty dolls).

There is no denying that all of us are now living in an era that full of temptations or “traps” set by the businessmen. Hence, the costs of living are now getting higher and higher. Most of the time, you may try your best in finding more sources of income, but never know how to “protect” your money. Anyway, “If You Don’t Know How To Take Care Of Your Money, Some Body Else(i.e. the businessmen) Will Do”.

Actually, knowing how to differentiate and manage your “needs” and “wants” in the daily life is as crucial as knowing how to manage a soccer team during a match. A great coach should know that they need a win, and they want to score more goals. There is no point for scoring 3 goals but losing the match by 3:4 at the end. Hence, please bear in mind that a good soccer team does not necessary be a team that can score many goals. But, it must be a team in which can win many matches. Think about it!

BANK Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) - which determines interest rates - at the current level of 3.5%. This decision has been made during the monetary policy committee meets today.

Stephen S. Roach
Chief Economist and Director of Global Economic Analysis, Morgan Stanley

Chief Economist of Morgan Stanley, Stephen S. Roach said that the economic growth for China and United States would decline in year 2007. From his view, the impacts of economic declination from both countries would be worse than what expected currently in the market. As a result, the whole world’s economic growth would decline in next year. He expected that the economic growth rate for the whole world will be about 4% in year 2007.

He said that from the past 5 years, China and U.S. have contributed about 43% directly to the global economic growth and indirectly spurred on the global economic growth (I.e. from 20% to 25%). From the past 5 years, China and U.S. have contributed about 2/3 of the global economic growth.