It might be intimidating to learn where and how to invest. So frightening that many individuals don’t proceed to the following step of determining how to forecast the growth of their investments. This is despite the fact that it is critical to formulating financial planning and setting goals.
What if you could enter a few figures into a simple formula to determine how long it would take for your investments to double?
That is exactly what the Rule of 72 does. Here’s everything you need to know about how it works and why it’s an important tool to have in your investment arsenal.
What is the Rule of 72?
The Rule of 72 is a mathematical principle that estimates the time it will take for an investment to double in value. The rule only applies to compounding growth or decay. In other words, you can only earn compound interest, not simple interest.
Rule of 72 formula
Rule of 72 Example
Assuming you will be able to generate an average of 10% (S&P500 returns with dividends reinvested)
Hence, assuming you invest into S&P500 with dividends reinvested, you will be able to double your money in 7.2 years!
The rule of 72 provides us investors with a quick and straightforward approach to forecast the growth of our assets. This rule highlights the beauty of compounding wealth growth by demonstrating how rapidly you can double your money with minimum effort.
Disclaimer: The information provided by LearnToInvest serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.