When investing, the Rule of 72 helps you estimate how long it would take to double your money. I have to emphasize that this is an estimate. It doesn’t always come out perfect, and you should realize that interest rates fluctuate, and you should be adding money to your investments. But it can give you an idea of how fast an investment can double your money.

An example of how the Rule of 72 works:

You divide 72 by the interest rate of your investment. If you wanted to do an online savings account (average rate is about 4.5%), you would do the following: 72/4.5=16. This means it would take 16 years for you to double your money, if you just put an amount in and let it sit.

Obviously, the more aggressive your rate of return, the faster the money builds. An aggressive stock or mutual fund with a 13% rate would double in five and a half years. But it is also much riskier than an online savings account, so you could lose your money. The Rule of 72 doesn’t take market crashes into account. This is why diversification is so important.

Post from: EveryJoe

The Rule of 72