InvestigateTV - The Rule of 72 is a useful formula that helps you estimate the number of years it will take you to double your invested money.
Aashish Matani, a managing director of wealth management at Merrill Lynch, said the Rule of 72 is not only easy to understand, but easy to calculate.
Here’s how it works: divide 72 by the annual interest rate to determine the amount of time it takes for an investment to double.
Matani used the example of a 25-year-old who’s 45 years away from retiring. He used 8% as an annual interest rate.
When you divide 72 by 8 you get 9. So, it would take the 25-year-old nine years to double their initial investment.
If they can double every nine years and have 45 years to do it, that’s five doubles. Here is how much the money would grow in that time.
- 2022 - $5,000 – initial investment
- 2031 $10,000 first doubling
- 2040 $20,000 second doubling
- 2049 $40,000 third doubling
- 2058 $80,000 fourth doubling
- 2067 $160,000 fifth doubling
The Rule of 72 is a powerful way for you to grow wealth over time. Invest as early as you can to take maximum advantage.
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