The Carr Report: Double up!

The late great Nipsey Hustle left us with some jams and gems. I heard about Nipsey but I didn’t get a full appreciation for what he stood for until after his death. All the attention he received around the time of his death prompted me to listen to his catalog of songs and the various interviews he did. IMPRESSIVE!

As a Financial Planner, one of the songs that caught my attention was “Double Up”. Wisdom in those lyrics! I’ll paraphrase a few and then summarize what he’s saying. “Double up, three or four times—I ain’t telling no lies. I just run it up. Never let hard times humble us. Turn 7 to a 14. 14 to a whole thing.”

Nipsey was talking about doubling the money he invested. No matter how hard times get, he will remain steadfast in his efforts to make a 100-percent return on his investments and keep doubling its value—three or four times. Echoing the words of the hook of this song—who knew, who knew?

The answer to the question of who knew? Jay-Z. In the song by Jay-Z titled, “The story of OJ”, Jay-Z is trying to teach his listeners how to “Double Up”. I’ll paraphrase a few of his lyrics. “Financial Freedom is my only hope. Forget living rich and dying broke. I bought some artwork that’s worth 1-million. Two years later it’s worth 2-million. Few years later it’s worth 8-million. I can’t wait to give it to my children.” In this song he says, he’s trying to give us a million dollars worth of game for $9.99—the cost of his album? Did you get the lesson or were you too busy bobbing your head to the beat?

Jay-Z is talking about “Doubling Up” on his investments. He’s also talking about creating generational wealth to be passed down to his children.

I’m about to crank up the volume on this “Double Up” theory. I’m about to give you the game for the cost of this newspaper. No loud music to distract you.

I recently shared a gifting idea online for Class of 2020 graduates. My middle son is a part of this graduating class. As I was thinking about a gift to give to him, I realized that I could provide a gift and a financial planning lesson at the same time. I can show him how to “Double Up”. He worked a part-time job during his senior year of High School. Given the fact he had earned income, we can open a ROTH IRA in his name. We will give him $500 as a graduation gift to park inside this ROTH IRA and invest in an S&P 500 Index Fund. A ROTH IRA is a retirement account with some tax advantages. I explained to him that if he didn’t pull the money out of this account and if he never added another penny to this account, forty-nine years from now when he reaches retirement age of 67-years old, that $500 one time investment would be worth approximately $53,000. Just think if you added money to it throughout the years, imagine how much it could be worth? He looked at me eyes wide open and said, “WOW, that’s a lot of money. How can $500 turn into $53,000 like that?” I explained to him of Time Value of Money, Compound Interest and Rule 72.

Time Value of Money: Money today is worth more in the future because of its earning capacity in the form of compounding interest and/or appreciation in value. The more time you allow money to compound or appreciate, the greater the eventual return.

Compound Interest: Interest earned on top of interest, reinvested. Interest you earned on initial investment reinvested to create larger investment. For example: $500 initial investment with a 10 percent annual return on investment will be worth $550 in one year. If you reinvest $550 with a 10 percent annual return on investment, it will be worth $605 in the next year. As you continue to allow money to compound it will grow exponentially.

Rule of 72: This is a quick rough and dirty calculation used in finance to compute how long it will take for your investment to double in value. It’s an approximate but close to accurate. The larger the rate of return, the faster it will double in value. To compute, you take 72 and divide it by the rate of return. For example, using 10 percent rate of return. 72 divided by 10 equal 7.2. With a 10 percent rate of return you can expect your investment to double every 7.2 years. If your rate of return was 7 percent, you can expect your investment to double every 10 years (72 / 7 = 10.28).

The sooner you start to invest money and allow it to compound, the more time you’ll allow your investments to continue to “Double Up” – 3 or 4 times. The higher the rate of return, the faster your money will “Double Up”.

As Jay-Z indicates with the artwork, this investment strategy of “doubling up” applies to anything that has the potential to increase in value or earn interest overtime.

The same holds true in reverse. When you borrow money, those granting the loans are making an investment in you. The interest you pay is their return on investment. It’s important to note: Interest you earn is a friend. Interest you pay is a foe!

They get you with double-digit interest rates on credit cards. Then they suck you in with the lower monthly payments by extending the term of your loan as long as they can. The higher the rate and/or the longer the term equates to them “Doubling Up” on you. For Example: A $200,000 mortgage with a 5 percent rate and 30-year term will cost you a total of $386,500. That’s $186,500 in interest—they “Doubled Up”.

As Jay-Z says in “The Story of OJ”, “Yall out here still taking advances” (loans). Me and my friends taking real “chances” (investments, businesses, art real estate, etc.)

(Damon Carr, Money Coach can be reached at 412-216-1013.)

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