The Rule of 72

 

By: Alvonta Primm (Brotha P)

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This upcoming April, I will be celebrating the one year anniversary of having my mutual fund account which is still my pride and joy to this day. I consider this to be one of the best decisions I have ever made. This decision came was made after a conversation with my dad about my interest in investing. He suggested that mutual funds would a safer route to take if I didn’t want to gamble on the stock market. To my surprise, the right person to talk to was right under my nose the entire time. This person was my dad’s childhood friend who helped my parents set up their IRA accounts.

Days later, when he came over, he told me and my brother to look up the rule of 72. Prior to our meeting, I have never heard of this rule. This was all new to me just like mutual funds themselves. During my research, I found that the rule of 72 was discovered by non-other than Albert Einstein. He even considered this rule to be his greatest discovery over E=MC2.  The rule of 72 is a method used to estimate the number of years required to double your money at a given annual rate of return. According to this rule, you would divide the rate which would be expressed as a percentage by 72. For example, if you want to estimate the annual rate of return needed to double your money in 4 years, you would divide 72 by 4 which would give you 18. That means that at 18%, it would take 4 years to double your money. To help make it easier, just know that 72 is divisible by 2, 3, 4, 6, 8, 9, and 12. The rule of 72 doesn’t only apply to money but to anything that grows. The underlying force of the rule of 72 is compound interest. Einstein described compound interest as the most powerful force in the universe (I will cover this topic in a future article).

 

https://www.investopedia.com/terms/r/ruleof72.asp

https://www.thebalance.com/whats-the-rule-of-72-4040505