By Abraham Dugal
When you embark on a professionally managed financial strategy, you might wonder when your money is really going to kick into high gear and start paying off for you. Well, the rule of 72 can help you figure it out.
The rule gives you a rough approximation of how long it will take an investment that earns compound interest—whether it’s a simple savings account or a complex investment portfolio—to double.
Simply divide 72 by the annual percentage of interest you expect to earn on the investment. The result is the number of years it will take to double your money.
Let’s say we have a hypothetical investment that currently returns 6.50 percent annual compound interest:
72 divided by 6.50 = just over 11 years to double
And we have a second hypothetical investment that returns 7 percent annual compound interest:
72 divided by 7 = about 10 years and three months to double
You can see how the slightest difference in interest rates can have a pronounced effect on how quickly your money might grow. Of course, interest rates can and do fluctuate, and taxes can take a chunk, too—so that’s why it’s important to stress this is only a rough approximation. Also, note that the hypothetical illustrations are not predictions of investment performance; investment principal and interest are not guaranteed and are subject to market fluctuation.
But the larger point to make is that the sooner you start an investing strategy, the sooner you can put your money to work for you.
Abraham Dugal is a registered financial advisor with Allen Insurance and Financial, 31 Chestnut St., Camden, Maine, 04843. 207-236-8376. Securities and advisory services offered through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser.