The great French Marshall Lyautey once asked his gardener to plant a tree. The gardener objected that the tree was slow growing and would not reach maturity for 100 years. The Marshall replied, 'In that case, there is no time to lose; plant it this afternoon!' - John F. Kennedy

It is often said that good things come to those who wait. This is especially true when referring to the magic of compounding.

The term compounding basically refers to earning a return not only on your investment, but on the returns of that investment. In other words, you get a return on your return. In the early years, the effect is not so noticeable, but the longer you let compounding work the more dramatic the effect on your investments. Let's look at an example.

Say you invested $1,000 and then let it grow at 8% annually. In the early years, your return, in dollar terms, is not that impressive. As you can see by the chart below, your return leaps dramatically as time goes on. Since you are earning interest on both your invested principal, and all the growth from previous years, the longer it is allowed to grow, the more dramatic the growth.

The Rule of 72
In addition to time, the other key factor influencing your investment growth is your return. This can be illustrated by “The Rule of 72”. The Rule of 72 states that 72 divided by your rate of return, tells you approximately how long it will take to double your money. Conversely, you can divide 72 by the number of years you have to invest, and you will get the return you need to double your money in that period.

Using the example above, it would take you approximately 9 years to double your $1,000 investment if you earned 8% per year. Or, say you have a 15 year window before you need your investment. By using the Rule of 72 and dividing 72 by15 years, you discover you need a return of 4.8% over that period to double your investment.

Time is your ally when it comes to compound growth. The longer you let your money work for you, the more dramatically it grows. The longer you wait before investing, the higher return you will need and the more risk you will have to take to achieve the same results.

To discuss how you can make your money work for you, visit our website to learn about the “10 Key Investment Principles”, or give us a call at (306) 757-2121. We would be happy to help.

Yours truly,

Tactical Asset Management, Inc.
phone: (306) 757-2121
fax: (306) 347-3655
e-mail: inquiry@tacticalassetmgmt.com
website: www.tacticalassetmgmt.com