The ‘Rule of 72’

Do you know how long it will take for your money to double?   You can calculate it if you know what your annual compound rate of return will be.  You simply divide '72' by the rate of return, and the result is the number of years it will take your money to double.  Conversely, if you are expecting your money to double, within a certain length of time, you can calculate the rate of return that is required to make it happen.

For instance:

If your investment will provide you with an annual return of 6%, it will take 12 years for your money to double - (72 ÷ 6 = 12) 

If your investment will only provide an annual return of 4%, it will take 18 years before your money will double - (72 ÷ 4 = 18) 

If however, you can increase your rate of annual return to 8%, it will take 9 years for your money to double - (72 ÷ 8 = 9); At 10%, it will take 7.2 years to double and at 12%, your money will double every 6 years.

What kind of difference will this make long-term?  Investing $10,000 for 30 years @ 6% will give you $61,388.  Investing the same amount for 30 years @ 8% will give you $106,291;  @ 10% you will wind up with $182,719 and @ 12% you'll have $311,666 after 30 years - more than five times as much as what you would have @ 6%.

As you can see, the rate of return you achieve will have a huge impact on the amount of money you will have at the end of a long period of time.  However, there is always greater risk associated with higher potential returns, so a balance of risk and potential return, which you are comfortable with, needs to be established and maintained for your peace of mind.  We can help you to determine the best balance for your particular needs.

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