The Rule of 72
Do you know how long it may take for your investments to double in value? The Rule of 72 is a quick way to figure it out.
Please refer to our transcription below if it is easier and/or more convenient for you:
A good gardener knows about how long it takes his prized tomato to double in size. Do you know how long it may take for your investments to double in value?
The Rule of 72 is a quick way to figure it out. By dividing 72 by the annual rate of return, you can come up with a rough estimate of how many years it’s expected to take for your investment to double in value.
- If Jan invests $50,000 in a mutual fund that has a hypothetical 6% rate of return. She can expect her investment to be worth $100,000 in roughly 12 years. The rule of 72 also can help calculate the effect of inflation.
- If Justin has $100,000, a hypothetical inflation rate of 3% would be projected to reduce his purchasing power by 50% in 24 years.
The rule of 72 is a shortcut to help you measure the effect of compound interest on your investment dollars.
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