Canadian Personal Finance Blog

This is a rewording of a previous posting on July 21st 2005. OK, so maybe I will concede that Einstein may have stated that this was important, but I am still not convinced he “invented” it, but be that as it may.

If you click on the graph on the right you will find a gif that will show you a graph to show you the rule of 72 at work. Assuming your saving a set amount of money with only 1 compounding period per year, this graph is fairly accurate.

The other thing to remember is this is a DOUBLING period, and the more of those the better. Why? Remember if you find an investment that grows say by 10% a year (over year), your money doubles in 7 years (approximately), so in 21 years (approximately) your money will be 8 times what it is today! (remember 2 * 2 * 2 == 8). This is why it is so crucial to find good growth in your investments.

HOWEVER, risk is another thing to take into consideration too, and we’ll talk about that soon as well.

Double, double, double!!! –C8j

Einstein Finance

This is a repeat, but a good article Einstein Finance , hope you enjoy…

No, it is not E=MC^2, look at the mess that one has gotten us into.

I have read a bunch of places that Einstein was the first to quote the rule of 72. What is the rule of 72? OK, this one is really important for compound interest or growth, so pay particular attention to this one. If you have an investment M it and it is growing at a rate of G (compounded yearly) if you divide G into 72, that is how long it will take M to DOUBLE in value.

Some examples:

• I buy a bond at 4% interest yearly growth (compounded), it will take 18 years for this bond to DOUBLE in value (i.e. 72 / 4 = 18 )
• I buy a bond at 2% interest and it will take 36 years for this to double in value.
• I leave my money in my bank account that pays 1% interest, it will take 72 years for it to double in value!

I don’t think I completely buy that Einstein thought this up, given that I have a math degree and this is just straight math, but let’s just say Einstein did say this, for now.

Find things that grow annually by 10% and your money will double every 7 years, which is really a good thing! Einstein Finance, a new term!

–C8j