When will an investment double? Use 'Rule of 72'

April 11, 1993|By Knight-Ridder News Service

How long does it take for an investment to double in value? You can get a pretty good idea by using the "Rule of 72."

Divide 72 by the total return your investment is earning. For example, if you invest $1,000 in a certificate of deposit earning 5 percent, you would have $2,000 in 14.4 years. (72 divided by 5 equals 14.4.)

Warning: This rule works only if the annualized return remains stable for the life of your investment and you reinvest your earnings.

Investors can use this rule when setting financial goals. Suppose you had $1,000 that you wished to double in 10 years. What rate of return would you have to earn to achieve that goal?

To find out, divide 72 by the number of years the money will be invested. In this case, 72 divided by 10 equals 7.2. So you would need to earn 7.2 percent each year for your $1,000 to double in 10 years.

If you win punitive damages in a personal-injury lawsuit, see your accountant before paying tax on that money.

The U.S. Tax Court recently ruled that some punitive damages are tax-free, according to the March issue of J. K. Lasser's Monthly Tax Letter.

Punitive damages are awarded to punish the wrongdoer who causes an injury. In the past, the IRS had argued that those damages were taxable.

Compensatory damages, however, were never taxed. They are awarded to compensate a person for pain and suffering.

Who's checking the checkers at supermarket checkouts?

According to the April issue of Money magazine, consumers are being overcharged at 30 percent of the nation's grocery stores.

In a recent survey, Money sent a team of shoppers to purchase randomly selected items at 27 major supermarket chains in 23 states. The result: overcharges on at least one item in 30 percent of the stores, undercharges at 7 percent and accurate charges at 63 percent.

In most cases, electronic scanners were to blame, the magazine said. If you are overcharged, the magazine recommends that you fill out a "scanner error form" and insist that the computer be fixed. Return to the store a few days later and buy the same item. If the problem has not been corrected, tell your local or state weights and measures regulatory agency.

If you are feeling guilty because you cheated on your taxes this year, confess to a priest, not an accountant.

Unlike lawyers and clergy, accountants generally are not protected by federal law when they have private conversations with their clients, says David T. Doran, assistant professor of accounting at Pennsylvania State University's Erie campus.

"When CPAs are subpoenaed by the IRS . . . they are obliged by law to testify against their clients," he said.

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