The power of compounding can be truly amazing. An investment of only $1000 earning 12% will grow to $30,000 in 30 years, compounded annually. If the investment was only earning 6%, it would be worth less than $6,000 over the same time period.
In order to determine quickly how long it takes to double your investments at different rates, I usually use the rule of 72. I simply divide 72 by the annual percentage growth to obtain the time it would take me to double the investment. Thus if you earn 12% annually for example it would take you 6 years to double your investment. At 6% it would take you twice as long or twelve years to double your investment.
In order to determine quickly how long it takes to triple your investments at different rates, I usually use the rule of 115. I simply divide 115 by the annual percentage growth to obtain the time it would take me to double the investment. Thus if you earn 5% annually for example it would take you 23 years to triple your investment. At 13% it would take you nine years to triple your investment.
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Friday, September 5, 2008
The Rule of 72
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The Rule of 72 is the guideline that I have used to determine how fast I can double money.
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