This is one of my favourites. Easy to use and understand. Very helpful in getting my clients to understand some finance.
You can use this rule-of-thumb to estimate how long it will take to double your money under various scenarios. To do this, you simply divide the annual rate of return into 72 to determine how many years it will take to double your money.
For example, if you assume an average 8% return on your Roth IRA or any investment, its value should double every nine years.
72/8% = 9 years
In other words, if you invest $50 000 , it takes 9 years to double the amount to $ 100 000 with an 8% yearly return. Easy?
(This doesn’t consider additional contributions, of course. And for a variety of reasons — particularly market fluctuations — it’s not a precise tool.)
You can run the numbers the other direction, too. What sort of annual return do you need in order to double your money every five years? 72 ÷ 5 = 14.4%.
Wow , isn’t that fantastic.
Use this rule to play around with your own figures.
Happy counting
