It’s also important to understand your financial goals, which vary with age, health, need, and financial status.

Finally bear the complexities of compound interest in mind. Albert Einstein called compound interest mankind’s greatest achievement. While the formula and math are complex, a simple rule of thumb will aid immeasurably. Just divide the interest rate into 72 and the quotient will equal the number of compounding periods it would take to double the principal invested.

Foe example: Suppose you invest $5000 at 8% compounded annually. 72 divided by eight equals 9. The compounding is annual, so your money would double to $10,000 in nine years. Say you invest $5000 at 8% annual compounding at age 21 and plan to use the money at retirement at, say, age 66. That’s five compounding periods. Your money would double, then re-double, etc. four more times. The investment would be worth $160,000!

By the way, over the last 30 years, American Funds has average 15% growth. Do the math!

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