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Rule of 72

 

 

 

As an investor, you want to have an idea of how long it may take money to grow. The Rule of 72 gives a rough estimate of the time it takes for money to double. Simply divide the number 72 by a specific rate of return, and the result is the approximate number of years for money to double.

Put Time on Your Side

If you understand the Rule of 72, you know that it’s best to start investing early — and the higher the rate of return, the better. Notice how $5,000 at age 29 doubles faster as the rate of return increases. But consider the interest rate on your credit card. Is it 18%? Higher? The Rule of 72 can work against you just as powerfully as it can work for you. That’s why debt management is always essential when you’re building wealth.

 

*The Rule of 72 is a mathematical concept that approximates the number of years it will take to double the principal at a constant rate of return compounded over time. All figures are for illustrative purposes only, and do not reflect the risks, expenses or charges associated with an actual investment. The rate of return of investments fluctuates over time and, as a result, the actual time it will take an investment to double in value cannot be predicted with any certainty. Results are rounded for illustrative purposes. It is unlikely that an investment would grow 8% or greater on a consistent basis, given current market conditions.

 

 

 

 

 

 

 

 

 

 

rule of 72