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 Rule of 72 

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The "Rule of 72" allows you to quickly estimate how money doubles...

It tells you the number of years doubling will take if you select the annual rate of return... or tells the (compound) annual return that will be required if you select the number of years your money will be working.

Here are the two basic ways to use the Rule...

Choose a number of years, divide that into 72, the result is the annual rate of return required to double your money.

Choose an annual rate of return, divide that into 72, the result is the number of years required to double your money.

Question 1: "What annual rate of return must I achieve to double my money in 12 years?"

Answer: You must get a 6.0% annual return (since 72/12 = 6).

Question 2: "How long will it take to double my money at an 8% annual rate of return?"

Answer: It will take 9 years (since 72/8 = 9).

Question 3: "I have $300,000 in stocks now and I'm 50 years old. If I can achieve a 10% return each year, how much will my portfolio be worth when I retire at age 65?"

Answer: With a 10% annual return, money doubles in 7.2 years [since 72/10 = 7.2]. In the 15 years until your retirement, your assets will double and then more than double again. So you should have more than four times your starting amount... in excess of $1,200,000 at your retirement. [An exact calculation says you'd have $1,253,000 after 15 years of 10% return.]

 

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