What is the Rule of 72?

rookie investing 101

The Rule of 72 will show you approximately how long it will take for money to double. Money will double at a certain point determined by dividing 72 by the percent of interest.

What is a real life example?

double every 24 years. The way we get to this answer is by taking 72 and dividing it by 3, 24. If the money was to get 6% rate of return, the money will double every 12 years. If the money obtains a 12% rate of return, how often will your money double? Well, 72 divided by 12 is 6, so the answer is every 6 years. Did you get the answer correct? Great job!

Therefore, if you put $1,000 in the 3% ROR bucket, you will have $2,000 in 24 years. If you put the same amount in the 6% bucket, you will have $4,000. Lastly, if you put $1,000 in the 12% bucket, you will have... Can you calculate the amount? The account would have grown to $16,000. Which account would you rather?
How does this apply to the investor?

Based on the Rule of 72, a one-time contribution of $10,000 doubles six more times at 12% than at 3%. Investors, like yourself, must know how their money will grow. When will you reach your targeted financial goals? Would you like to reach them sooner or later? Well, the Rule of 72 shows us that the higher the rate of return, the sooner you will reach your financial goals.

How do I get the highest interest rate possible?

A great question without a real answer. It's almost like asking what is my last day on earth. No one really knows. There are tried and true concepts that you can follow. These concepts have helped many to become not only wealthy, but build generational wealth for their families.

The first concept is discipline. Discipline means staying focused on your goals. A great example is choosing to make coffee at home instead of buying a $6 cup at your favorite coffee shop. Maybe for you it's not going on vacation, but choosing to invest in a property or more in stocks and bonds for the year. Discipline will help you reach your goals.

The second concept is diversification. There is no one single get rich investment. Diversification will help you put your eggs in multiple baskets. Some baskets will win when others are loosing. However, if you have the right structure according to your goals, you should win overall.

"The biggest risk a person can take is do nothing." - Robert T. Kiyosaki

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