Many investors often inquire about what they should expect their investment growth to look like or at what point they can expect to see their money double. Rule 72 is a simple way.
Many investors often inquire about what they should expect their investment growth to look like or at what point they can expect to see their money double, triple, etc.
For most physicians, advanced finance courses weren’t worked into the schedule along the way … but, the good news is you do not need to get too advanced to figure out how long it would take for your investments to double (assuming a hypothetical static rate of return) by simply using the Rule of 72.
The Rule of 72 is a simple formula. You take a hypothetical rate of return and divide that into the number 72 and the output number is the number of years it would take to double your investment. For example, if you have a growth-oriented portfolio and hypothetically assume it returns 8%, you would see the amount that you originally invested double in nine years.
This rule also highlights how poor of a choice a bank account would be if you were looking to see your money work for you and try to meet and exceed inflation. If your money grows at 1% in a money market account, you could expect it to take 72 years for the value to! What a difference — 7% more cuts the time it takes to double your investment by 63 years!
Of course, the higher the return potential, the higher the risk you will need to take on. So as nice as the equation looks you will need to put a lot of thought into where, how and when you are investing your money. But given a long-term time horizon and a well-diversified approach, it is certainly reasonable to assume that a growth-oriented portfolio can provide nice growth percentage opportunities.
So when you are weighing your options or looking at what you might need for a retirement nest egg, I would use the Rule of 72 to estimate the amount of time it would take an investment to double, given a hypothetical static rate of return.
Illustrations of the rule of 72 are hypothetical examples for illustrative purposes only. They are not representative of any specific investment and do not factor investment costs, which would lower results. Investments will fluctuate and when redeemed may be worth more or less than originally invested. Diversification is a method used to manage risk. It does not guarantee against loss. Past performance is not a guarantee of future results.
Jon C. Ylinen is a Financial Advisor with North Star Resource Group and offers securities and investment advisory services through CRI Securities, LLC. and Securian Financial Services, Inc., Members FINRA/SIPC. CRI Securities, LLC. is affiliated with Securian Financial Services, Inc. and North Star Resource Group. North Star Resource group is not affiliated with Securian Financial Services, Inc. but is independently owned and operated. The answers provided are general in nature and are not intended to be specific recommendations. Please consult a financial professional for specific advice in relation to your individual circumstances. This should not be considered as tax or legal advice. Please consult a tax or legal professional for information regarding your specific situation. 679880/ DOFU 6-2013