Rule of 72 explained: You can double your money quickly
The Rule of 72 is a formula for predicting how long it will take to double an investment portfolio, and show the potential for compound growth. While it’s a useful guide to calculating how long it will take to invest your money to provide a certain amount of return, it’s a general guideline – not a promise.
The key to growing your wealth is to consistently save and contribute to your investment accounts.
How Governance Works
Divide 72 by your expected rate of return to estimate how many years it would take for your money to double. For example, if the expected rate of return is 6%, the calculation would look like this:
72/6 = 12
Therefore, it will take 12 years to double your portfolio if there is an average return of 6% per year. However, you can rate the highest rate of return according to your investment vehicle. If you average 8% annual return, you will double your money quickly:
72/8 = 9
Jumping from 6% cashback to 8% Cashback allows you to double your money in three years in no time.
Gold Offer: Sign up with American Hartford Gold today and get a FREE investor kit, plus get up to $20,000 in free silver on qualifying purchases
WHY Integration Is So Powerful
Compound interest is the interest you earn on interest – and although compounding can start slow, it gets stronger as your portfolio grows.
Say $1,000 grows at an annual rate of 7%. After one year, you could have $1,070. After that, 7% interest accrues to $1,070. After the second year, you would have $1,145.
You can also renew payments and interest payments to include them.
Extra money: See how you can get up to $1,000 in stock when you fund a new sofi inva sofi account
Cutting lost time: money and taxes
Without compounding growth, money can eat into your portfolio. Mutual funds and exchange-traded funds (ETFS) come with a fee, or a fee for your account manager. While many ETFs track market benchmarks such as the S&P 500 and have expense ratios below 0.10%, some managed funds have expense ratios of 1% or more. That can seriously hurt your comeback.
If your ETF generates an 8% annualized return and has a 1% dividend yield, you only end up with a 7% return. Instead of doubling your money in nine years, the low 7% results in doubling your money in 10 years.
Tax rates can also assess returns if your fund distributes cash that is treated as ordinary income. Because of this, you may want to choose an index fund with a low expense ratio and a dividend that can be treated like a regular fund.
Save Smarter: manage your money with Rocket Mones Majethi app, one of the favorite coins
Putting the law into action
You can use the rule of 72 to measure how long it will take for your portfolio and use the fund’s historical returns to predict future returns – although remember that past returns do not predict the future. Having an estimate of how long it will take to double your money can help you plan for your retirement.
