Tuesday, January 7, 2014

Use the Rule of 72 to Estimate Interest or Returns on Investment

When you're considering where to invest your money and what kind of return you want to get, the Rule of 72 can put you in the ballpark. Here's how it works: 72/Interest Rate = Years To Double Investment While the Rule of 72 isn't perfectly accurate, it can give you a frame of reference. So, say you have $5,000 and you want to place it in a mutual fund that generally has a return of 10%. That $5,000 will double to $10,000 in about 7.2 years. You can also use this to estimate the effect of inflation. While US inflations rates vary widely from year to year, we could reasonably estimate at least a 2% increase in inflation. Using the Rule of 72, we can see that your $10,000 today will be worth about $5,000 in about 36 years.

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