What new money is created on €5000,
if 8% is earned?
€5000 (1 + 0.08) = €5400
€5000
Original Lump Sum
€400
New Money
What new money is created on €5400,
if 8% is earned?
€5400 (1 + 0.08) = €5832
€832
€5000
Original Lump Sum
€400
(Yr 1)
€432
(Yr 2)
 €5000
( 1 + 0.08) = €5400
 €5400
( 1 + 0.08) = €5832
 €5832
( 1 + 0.08) = €6298
 €6298
( 1 + 0.08) = €6802
 €6298
( 1 + 0.08) = €7346
Rule of 72
72
Interest Rate
72
8
= How many years it takes
to double your money
=
9 years

€5000 ( 1 + 0.08) = €5400

€5400 ( 1 + 0.08) = €5832

€5832 ( 1 + 0.08) = €6298

€6298 ( 1 + 0.08) = €6802

€6802 ( 1 + 0.08) = €7346
…………………….
no of years
Principal (1 + interest rate/100)^
(One plus the interest rate)
to the power of
(the number of years)
multiplied by (the principal)
The long way…
€6802 ( 1 + 0.08) = €7346
The short way…
€5000 * (1.08)^5 = €7346
Take a person who starts saving €3000 per year
from the ago of 22. She puts away the money
into a high interest account earning 6%
How much does she have when she turns 65?
€674,186.99!!!

In 1626, the natives in New
York traded Manhattan for
$24 worth of glass beads.

Do you think that was a
good deal?

Who got the better deal?

If the Americans had put
that $24 on deposit at 6%
interest in 1626…

They could buy Manhattan
today…

TWICE OVER…

SKYSCRAPERS AND ALL…

AND have $1 billion left
over in spare “change”
Transaction
Costs
and
Taxes
 Imagine,
if each year, 5% of her portfolio was
taken away in transaction costs.
 By
the time she would have arrived to 65, 5%
of the portfolio was worth…
 €674,186.99
* 5% = €33709
€26968
The price of
a VERY
NICE new
car…
 Currently,
the government charge 25% of any
gains over and above €1270.
 The
impact of transaction costs is enough to
prove to you the difference expenses can
make over time
 What
if you could legally avoid paying tax?
 Put
 All
the money into a pension!
a pension does is put a wrapper around
your investments that prevents the tax office
from taking some out of it.
 Also,
it stops you from going on a spending
spree, as it is tied up there until you retire
Not at all, instead of
spending
all
your
money now, you simply
put some away, let it
grow
and
live
more
comfortably and enjoy
life all the more when
you do retire.
Carry out these three exercises to find the
answers using the “short cut” formula.
no of years
Principal (1 + interest rate/100)^