Last post we talked about how investment returns can be boosted by compound growth. Now let discuss the rule of 72.
Carrying on from his work with compound growth, Einstein came up with the rule of 72.
The rule of 72 is a nifty mathematical trick that allows you to calculate how long it will take to double your money using the power of compound interest.
Just divide 72 by your capital growth rate to work out how long it will take your investment to double in value.
For example, a $50k investment would take 14.4 years to double on at a 5% annual growth rate (compounded) to become $100k, because 72/5 = 14.4.
Or, inversely, if you want to double your investment in 10 years, you’ll need to find an investment with a 7.2% annual growth rate (ie, 72/7.2 = 10).
This shows the big difference that incremental changes can make to your financial future when considering compounding interest and the rule of 72.
To make these principals work in your favor you need to get in early and let your investment compound and you need to achieve the greatest growth rate you can to ensure your investment increases at an even greater rate.
Talk to us today to see if you can make these principals work their magic on your own investment opportunities.