Even back in the good old days when I was starting out I reused older material, good to see. It is important to figure out how long it will take to double your money, and how many DOUBLES you will need to reach your savings goals and the Rule of 72 is one way to estimate that.
This is a rewording of an earlier 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 he did make the rule of 72 a popular topic.
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 graph shows how simple the calculation can be, say if I can find an investment that gives me 36% growth a year, it would double in two year! Can I find that investment? No.
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 (about), so in 21 years (about) 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.
What About Risk
However, risk is another thing to take into consideration too, and we’ll talk about that soon as well.
The importance of the doubling period in investments cannot be discounted.