Even back in the good old days, when I was starting, I reused older material. Determining how long it will take to double your money is essential. How many DOUBLES will you need to reach your savings goals? The Rule of 72 is one way to estimate that.
This is a rewording of an earlier posting on July 21st 2005. I will concede that Einstein may have stated that this was important. However, 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 showing you a chart showing the rule of 72 at work. Assuming you are saving a set amount of money with only 1 compounding period per year, this graph is reasonably accurate. The chart 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 years! Can I see 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 finding good growth in your investments is crucial.
What About Risk
However, the risk is another thing to consider, and we’ll also talk about that soon.
The importance of the doubling period in investments cannot be discounted.