Author: Gary M. Renaud, RFP, CFP
Although we have all attended school, I am always astounded by
what we weren't taught about taking care of our money.
One of the most critical topics we missed in school was the
importance of the "Rule of 72". The rule is very simple. Whatever
rate of return you receive on your investments divided into 72 will
tell you how long it will take for you to double your money.
For instance, if you receive a 4% rate of return, in 18 years
your money will double (72/4=18). On the other hand, if you
invested at 6% your money would double in 12 years. At 12% it would
take only 6 years.
Now let's put the rule to work assuming an original pool of
capital of $50,000 invested over a 36 year period using the table
below.
| Original $50,000 |
@4% doubles in 18 yrs |
@6% doubles in 12 years |
@12% doubles in 6 yrs |
| 6 Years |
|
|
$100,000 (1st double) |
| 12 Years |
|
$100,000 (1st double) |
$200,000 (2nd double) |
| 18 Years |
$100,000 (1st double) |
|
$400,000 (3rd double) |
| 24 Years |
|
$200,000 (2nd double) |
$800,000 (4th double) |
| 30 Years |
|
|
$1,600,000 (5th double) |
| 36 Years |
$200,000 (2nd double) |
$400,000 (3rd double) |
$3,200,000 (5th double) |
So, as you can see by the end results, using the "Rule of 72"
with your investments could have a very dramatic impact on your
future lifestyle.
From the Ottawa Citizen "Your Money" feature, January
1997
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