The Rule of 72

If you are new to the stock market and investing, you may not be aware of “The rule of 72”. Most investors are aware of this rule. Using this rule we can project how long it will take to compound our cash based on the rate of return we are striving to receive from our investments. Here’s how it works. We simply take the projected return and divide into the number 72. By doing this simply math, we can project how long it will take us to double our money. If we were to earn a 6% return on our money in our trading and investment accounts, it would take us 12 years to double our money (72/6 = 12). On a 10% rate of return, our money doubles in 7.2 years. These are relatively conservative rates of returns that can be achieved in the stock market over time as a long term investor. But we always want to do better than the markets average and we don’t want to settle for just outperforming the market, we want to substantially out perform the market. Let’s use a 25% gain as our goal per year. At this rate of return, it would only take 2.88 years to double our money.

Why are we mentioning this rule of 72 tonight? We just want to put in perspective the returns of our STHQ trading system. You will see on the home page that our returns have averaged 94% per year for the last 5 years. Using this average, we would double our money in only 7.7 months. There is no service or system out there that can match this performance using only 5% to 10% of available capital in each trading position as our system calls for. We did it and all these trades were sent as alerts in real time and are available for all to see for the record on our site in our trade history.

2003, only a Dream?

Our 350% return in 2003 was exceptional and we admit that when averaged into the 5 years it greatly increases our average return. But let’s take out that return just for the heck of it and make believe it was only a dream. Let’s just use only the last 4 years of returns to get our average return. 19%, 23%, 81% and 26% would average out to a 37% return per year. Now if we use the rule of 72 with an average return of 37% per year, we would double our money in just under two years.

It’s hard to believe you will find any system or service including professionally managed mutual and hedge funds that will double your investment in less than two years. If you can find one anywhere in the universe let us know. We are not talking about buying an option with all of your available capital and hoping you hit a home run. That would be pure speculation and nothing more than a gamble. What we are talking about here is a system that limits risk by using no more than 5 to 10% in any one trade. The returns our system has made are amazing in of itself but when you take into consideration that we did it using only 5 to 10% of our capital in each trade, it makes the returns just that much more remarkable.

It’s Not as Easy as it May Seem

Although we are proud of our system and accomplishments, we are not writing this commentary as a means to boast. We are simply explaining the rule of 72 and putting into perspective how hard it is to achieve the types of returns STHQ has achieved since our inception. What we do is not easy and we hope that our new members will realize that high returns in the stock market are not easy to accomplish. It’s not rocket science, but on the same token, it’s not as easy as it may look initially.

Remember the rule of 72 when you are searching for a way to put your investment dollars to work for you. It’s a good way to figure out the rate of return you need each year to accomplish your financial goals.