We all want to double our investments, but over what period of time? With the “Rule of 72” you can figure it out!
It’s called the “Rule of 72” and it’s a quick formula that will help you determine how long it will take for your investments to double at your current interest rate.
One of the reasons I love this little formula, is because it helps you think about the kind of risk you want to take with your investments. It shows you the trade-off between investing at a given interest rate and the growth in your portfolio.
With every investment you have to consider the risks, which can often be correlated directly with reward or loss. If you make a very safe or low risk investment, there is a good chance that you won’t lose any money, but sadly you will make very little return.
In today’s Financially Fabulous Episode I talk about the details on this little formula and how to apply it to your current investments.
If you divide 72 by your current interest rate you’ll get the actual number of years it will take for your investments to double at that interest rate.
Another reason, this formula is useful is because people like to understand how many times they can double their current investments before they retire at age 65, which is the typical retirement age. This formula doesn’t, however take into consideration ongoing contribution to the account. It assumes that no additional funds will be added.
If you haven’t started thinking about saving for your retirement, now is a great time to start and apply the “Rule of 72” to see how many times you can double your investment in the years you have prior to your retirement.