I have my own little calculation which I am happy to pass on to you. I learned it from an internet site a while back and it has stood me in good stead. Basically for an investment to work for me means I am generally looking for a return that will double my money in five years. In a recession I might extend that to, maybe, seven years – of course the higher/faster the return, the higher the risk.
The calculation I use is to divide the interest rate into 72 to find out how long it will take me to double my money. For example, if the interest rate on a particular investment is 6 per cent, then it will take me 12 years (72 ÷ 6 = 12) to double my money. Too long for me. So I would be looking for an interest rate (known as a ‘return’) of around 14.4 per cent (I know, I know, you’d be lucky at the moment but this is only an example). This works for any amount of money incidentally.
So, if you want to know what interest rate to look for divide 72 by the number of years you are prepared to wait. 72 ÷ 5 = 14.4 per cent. Gosh, something useful for you there and I did all the work for you.
For me, therefore, any investment that looks like it won’t double my money in five years I pass on or, if it makes financial sense to get out (i.e. no penalty for doing so), I will let go of. I have my criteria, you need yours.
Perhaps you need to let go when:
PERHAPS YOU ONLY
INVESTED GREEN AND
NOW WANT MAINSTREAM
OR VICE VERSA
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