Rule Of 72

Have you ever heard about the "Rule of 72"?

It is utilized to quickly provide a rough calculation of how long it will take your investment to double.

You need to know three things to use the "Rule of 72":

  1. The annual growth rate of the investment
  2. The current amount of money invested
  3. The amount of time (in years) the money will be invested

NOTE:  This rule does not include any additional contributions you make to your investment.

Here is how it works.  You divide 72 by the annual growth rate of the investment.  That tells you how many years it will take for the investment to double.  Then divide the number of years it takes to double into the amount of time the money will be invested.

Here is an example.  Let's say that you have $40,000 invested growing at an average of 8% a year and that it will be left alone for 36 years. We divide 72 by 8 and that tells us that the investment will double approximately every 9 years.  We divide the 36 year investment period by the time it takes the investment to double (9 years), and we find that the investment will double approximately 4 times.

So let's do the math and double the invest FOUR times.

Double Once:  $80,000 

Double Twice:  $160,000

Double Thrice:  $320,000

Double Four Times:  $640,000

Please note that this is an approximation.  The actual calculation is more difficult, but using the Investment Value Calculator HERE we find that the actual amount would be $705,793.

The point is to get a close approximation really fast. 

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