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Einstein's Rule Of 72By Roger Sorensen
Einstein's "Rule of 72" (commonly referred to as simply the Rule of 72) provides us with an easy formula to figure how long it takes to double you money. As a rule of thumb, at 10% interest money will double every 7.2 years.
It doesn't matter what type of investment you're dealing with when using this rule. The investment can be a stock, a bond, a CD, and any other way of getting a return on your money. You don’t need a calculator (but if you want to use one, you can use the Double Your Money Calculator) and you can use this method to quickly calculate in your head how long it will take to double your money. All you need to do is divide 72 by the annual rate of return. The result would be approximately the number of years required for your investment to double in size.
For example, if you have $10,000 in a savings account at a bank, earning you 3.0%, divide 3.0% into 72. It will take 24.0 years to double your money.
Einstein once said, "If people understood the Rule of 72, they would never put their money in banks!”
If you have $10,000 invested in a mutual fund that returns 10%, divide 10% into 72. Your money will double in 7.2 years. A much better return!
Doubling your money is a very important part of wealth accumulation. If your money is in the bank at 4%, how many doubles do you have left in your lifetime?
If you are 35 years old, with money earning a measly 4% in a bank and doubling only every 18 years, you only have one double by age 60. If you figure that inflation averages 3% you're just above breaking even, and if you figure the income taxes you paid on the 4% growth, you are losing money.
If you're 35 and your money is growing at 12%, you will have six doubles by age 60!
If you're 50 and your money is growing at 12%, you have 1.6 double left by age 60!
What does this mean? It means you need to start investing your money as soon as you can. Today is a good time to begin.
Copyright Roger Sorensen
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