Wednesday, December 15, 2010

An Investor's Best Kept Secret! The Rule of 72 Explained

Hello Everyone!

We're here to share with you today, a secret. Areally good one, too. One of these days, you guys are probably all going to want to invest. Now here's the secret, a really popular and easy rule that investors use. 
What is this life-changing revelation?? ....... It's called the 'Rule of 72'.

According to Investopedia, The 'Rule of 72' is a simplified way to determine how long an investment will take to double, (given a fixed annual rate of interest). By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself.

For example, if you had $1000 that was invested at a rate of 6% a year, it would take (72/6 =12) 12 years for your money to double in value. i.e. in 12 years you would have $2000.

So this would be really useful if you were investing for a particular financial goal.

Now keep in mind that this rule is best used when dealing with interest rates of under 10%; it doesn't work as well with interest rates higher than 10%. 

Happy cash counting!
The cashsmart Team

1 comment:

  1. Wow that's actually interesting. LOL nice comic.