Do you understand the Rule of 72?
The Rule of 72 is a common calculation used by investors to determine how long it will take their investment to double in value given a certain rate of return. Obviously, this is not a mathematical theory set in stone which can never fail and always is correct to the third decimal place. Having said that, the Rule of 72 has shown to be fairly reliable over the years at giving you a ballpark estimate of how an investment might play out.
Let’s look at a few examples.
The calculation itself is so simple, even a caveman…never mind. It really is simple. You divide 72 by the rate of return to arrive at the estimate (in years) of how long to double your investment. What if you expect a 2% rate of return? Using the Rule of 72, how long will it take to double your money?
72 divided by .02 = 36 years.
Remember to move the decimal over after you do the math. If you’re expecting a 2% return from any investment, you REALLY need to check out The Complete Solution For Real Estate Investors™, the innovative method Platinum Properties Investor Network uses to invest in income property. If our returns dip below 36%, we’re not happy campers.
Speaking of 36%, let’s do another example using the Rule of 72.
72 divided by .36 = 2 years! Yes, you read that correctly. Two years is how long it would take your investment to double if you maintained a 36% annual rate of return. How would you like them apples?