Fabulous Financials

Sorry I’m late posting this but there’s still time left.  Download Suze’s new book for free.  You have until 11:59pm CT next Thursday, Jan 15.  [h/t DAMF]

In this week’s Money 101 post, the Nuru Personal Finance deck brings us the Rule of 72:

Definition

The Rule of 72 is a quick way to determine how long it will take you to double your money at a given interest rate.

To Calculate

Divide the number 72 by the annual interest rate you expect to get on an investment.  The answer represents how many years it will take to double your money at that interest rate.

72 / interest rate = years to double

Application

Suppose you invest in an account that promises an interest rate of 6% compound annually.

72 / 6% (interest rate) = 12 (years)

It will take about 12 years for you to double your money at 6% interest.

Application - Part II

Now let’s alter the situation a bit.  Say you want to double your money in 3 years, but you don’t know what interest rate you need in order to do so.  You can use the same equation, this time dividing 72 by the number of years you’re willing to invest.

72 / 3 (years) = 24 (interest rate)

In this case, you will need to earn an interest rate of 24% to double your money in 3 years.

Double Your Money

Remember, if you want to achieve financial freedom, you need to be consistently doubling the money you’ve earned.  The Rule of 72 shows you what it will take to get there.

I think it goes without saying, but this concept assumes all things remain constant - consistent growth and no additional contributions.  Given our current economy, it’s probably easier to estimate how quickly you can lose half of your money.

Here’s another personal finance sound bite, courtesy of the Nuru personal finance deck.

Questions to Ask Before Investing [in a mutual fund]

How long has the fund been around?

How has the fund performed historically?

Is it a load or no-load fund?

Is the expense ratio high or low?

How long has the fund’s management team been around?

Are there 12b-1 fees?  These are fees that funds tack on to cover some of their sales and marketing costs.

Man, I love these little cards.  Between these, the stack of investment books on my nightstand, my personal finance blog list, and current news articles, I’m going to be a lean, mean, investing machine. LOL  I’m just kidding.  Seriously though, what do you think of these Money 101 posts?

There’s a poll embedded so if you’re reading from RSS, you will have to click through.

Today is Friday so here’s another sound bite of Money 101 from the Nuru Personal Finance deck:

Mutual Funds

A mutual fund is a group or institution that invests your money for you.  Each mutual fund has a portfolio (a group of investments) which they believe will prove profitable.  When you give a mutual fund $10,000, you are trusting that its managers will invest your money in a way that is profitable to everyone.

Load vs. No-Load Funds

A “load” is a sales fee that you pay for buying or selling shares of mutual funds.  A load fund charges you sales fees.  A no-load fund does not charge sales fees.

Finding out whether a fund is a load or no-load fund is just one of the steps to researching the right mutual fund for you.  As a general rule, you are better off investing in no-load funds that have a low expense ratio.

I learned about load and no-load funds as I was doing the research for my non-retirement investment account.  One of the reasons I chose Vanguard is because their mutual funds are no-load AND they have low expense ratios.  An newbie investor’s dream.

HAPPY FRIDAY!!  As promised last week, I will spotlight a personal finance topic from the Nuru Personal Finance deck every Friday.  Today is the first installment of Money 101.

You’ve probably read in a PF book “it is better to invest in an index fund than individual stocks.”  Or as of late, you may have heard someone scream, “the index dropped xx points!”  Did you know what they were talking about?  Ever wondered what the heck is a “stock market index?”

Well don’t fret.  The Nuru PF deck has a card titled “Indexes You Should Know About.”

The Dow

(Dow Jones Industrial Average)

A listing of 30 of the most influential companies in the U.S., including Home Depot and Microsoft.  When “the Dow is up,” the collective stock performance of those 30 companies “is up.” [and vice versa -SM]

S&P 500

(Standard and Poor 500)

An index of 500 of the most frequently traded stocks in the market.  It is what experts use to gauge the performance of the overall “market.”  If the S&P is doing well, it’s fairly safe to say the economy is doing well.  [and vice versa -SM]

Wilshire 5000

An index that attempts to measure the performance of all publicly traded U.S. stocks.  The most comprehensive index available, the Wilshire 5000, is often used to represent the market as a whole.

Russell 2000

An index that consists of 2000 small-cap firms.  A small-cap firm is one whose market capitalization (the number of stocks the firm has issued times the value of each stock) is relatively small (under 1 or 2 billion dollars).

Nasdaq Composite

Consists of all funds that trade on the NASDAQ (over 3000 securities).  Because it’s heavily listed in technology accounts, the Nasdaq Composite doesn’t adequately represent the market as a whole, though it’s a good indicator of the tech industry.

I’m sure many of you knew this basic information already, but we don’t hear about the Russell 2000 or Wilshire 5000 too often.  And it’s also important to note that companies are added and removed from the Dow periodically.  Of the 12 original companies included in the Dow when it was first created in 1896, only 1 remain.  Can you guess which one?

If you want to get your own deck of these personal finance cards, check out the nurushop.