Einstein: Doubling is the trick!

in Einstein, Growth

The key to the rule of 72 is that it is describing how long it takes your money to double. The shorter the period, the more doubling periods you will get over a long period of time (if you double click on the graph beside you will see what I mean).

If you look at the table below you can see what happens if you can actually get your investments to give you 7% or higher growth every year:

Rate Years to Double Growth over 40 years
1% 69.7 0.0
2% 35.0 2.2
3% 23.4 3.3
4% 17.7 4.8
5% 14.2 7.0
6% 11.9 10.3
7% 10.2 15.0
8% 9.0 21.7
9% 8.0 31.4
10% 7.3 45.3
11% 6.6 65.0
12% 6.1 93.1
13% 5.7 132.8
14% 5.3 188.9
15% 5.0 267.9
16% 4.7 378.7
17% 4.4 533.9
18% 4.2 750.4
19% 4.0 1051.7
20% 3.8 1469.8

So as you see if you can get your investments to pay 10% a year somehow, your initial
investment will have grown by 45.3 as a multiple. That means if you invested $1000 (and never added to the principle), forty years later you would have $45,300 , not bad eh? Of course if you could find something that paid 20% that same $1000 would be worth $1,469,800 , but who could find something that pays that much (unless you were running a pay day advance company).

{ 2 comments }

  • fin_indie February 14, 2007, 8:20 AM

    Always loved the rule of 72. Just goes to show you that earning 16% at Prosper.com goes a heck of a long way versus 5% in a money market. (Risk aside, of course!)

    Reply

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