Wednesday, July 16, 2008

Rule of 72 and how it works

Have you heard of the Rule of 72 and how it works?

The Rule of 72 is an easy way to calculate the approximate time it will take your savings to double. You can divide 72 by the interest rate you earn to determine the number of years it will take your money to double. It shows the way money can grow so much faster with a higher rate of return. For example: if your interest rate is 7.2% then it will take 72/7.2 = 10 years, thus at 7.2% interest rate it will take 10 years to double your money. If you earn 10% then it's 72/10 = 7.2 years, which is quite a bit less than 10 years, especially if you plan to invest for say 21 years. Thus at 10% your investment would triple plus the interest on the interest, so it would actually grow to about 3.5 times the original investment. But at 7.2%, your investment will only double plus a fraction, about 2.2 times the original investment amount.

Thus you can see why it's so important to attain the highest return on your investment and that every 1 or 2% over a long period makes a huge difference on your return.

By using the Rule of 72, you can see why it pays to fight for every extra percentage point of interest you can get. Once you know your rate, use the Rule of 72 to compute how fast YOUR savings will double!

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Thank you for reading my blog and if there is anything else I can help you with please don't hesitate to contact me,


A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate

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RE/MAX Realty Specialists Inc.

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