Why You Need To Know The Rule Of 72

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Why You Need To Know The Rule Of 72

I had been investing for probably 10 years before anyone ever explained the rule of 72 to me. I still remember sitting in that office board room one night with my former boss, and a few other people listening to an advisor from Primerica explaining compound interest and the value of knowing the rule of 72. Hopefully you’ve had the benefit of someone explaining this important principle to you already, and weren’t like me learning it 10 years later than I should have. At least I learned it though. Here’s the basic premise of the rule of 72. When it comes to earning interest, to determine the number of years it will take for your original investment to double, divide 72 by the interest rate you are receiving. This will give you the number of years it will take for your money to double. For example, let’s say you are investing $10,000 and the investment you have chosen will pay a fixed rate of return of 4%. That’s actually generous these days with GIC’s paying less than 2% in most cases.

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