Double Your Money with the Rule of 72
How long will it take to double your money in a particular investment? There is a quick and easy way to determine that. It is called the rule of 72. Here is the equation: N=72/R
N = Number of periods (years)
R = Rate of Return
So, if you have an investment opportunity to earn a 7% return, it will take approximately 10 years to double. 72/7 = 10.3 years.
This is the benefit of compounding interest. If you invest $100.00 in an investment that returns 7%, at the end of the first year, that investment will have grown to $107. In the second year it will grow to $114.50. Your money earns more that the $7.00 in the first year, because you are also making money on the interest earned in year 1. At the end of year 3, your balance would grow to $122.51.
This is exciting because of the power of compounding interest and the time value of money. The longer you leave your money untouched in investments, the more the investment grows. If you are putting money into a 401 K plan at work (or using an IRA) and you have 20, 30. or 40 years until retirement, compound interest and time value of money are two of your best friends. Continue to fund your retirement programs and you will have a tidy bundle of money to use in the "golden" years.