What Is The Rule Of 72 And How Does It Affect Your Investing Strategy?
Tobias Martochko is the author of Money is the Root of All Wealth: 7 Steps for Building Massive Wealth: Told through Story. He is also the creator of that very handy video above that explains the Rule of 72. We recently posted about how much you need to save and invest to become a millionaire by 40 and the Rule of 72 will certainly help you better understand the ins and outs how compound interest works.
What is the Rule of 72?
Simply put, it is the mathematical way to determine how long it will take your money to double at any given rate of return. For instance if your rate of return is 7% it will take your money 10.3 years to double. All you need to do is divide 72 by your expected rate of return and then boom, you can assume that the $10,000 invested in a low-cost index fund in a Betterment or Wealthfront or Vanguard account will be $20,000 in 10.3 year. Of course, your ongoing savings will help you fast surpass $20,000 even faster. But you already knew that.
So there you have it. If you need your money to double faster, you need to find more aggressive investments. For the rest of us, we can just save and invest as much money as possible be lazy and watch our accounts grow by an average of 7%.