Take 72 and divide it by the amount of return on your investment. That is the number of years it will take to double your original investment.
For example: Ten year-old Keanu buys a bond for $10,000 and earns 6%. 72 divided by 6 = 12. So every 12 years, Keanu’s money doubles. When he is 22, he will have $20,000.
What if Keanu leaves that money alone until he retires at 60 years old? His money will double 4 times by then and he will have $160,000.
Let’s say Keanu used that original $10,000 and bought a stock that earns 12% return (72 divided by 12 = 6) he will have $20,000 in 6 years when he is 16. If he leaves that money alone until he retires, it will double 8 times and he will have over $2.5 million when he is 60 years old.
The Rule of 72 is based on a principle called “compound interest” (return), which is sometimes called “The 8th Wonder of the World”!
Go Team! Brett Ellen, The Kids Finance Coach
