FOLLOW THE RULE OF 72

September 16, 2008
Michael Sheehan

Physician's Money Digest, February15 2003, Volume 10, Issue 3

Examples:

How long will it take for themoney in your investments to double?Divide the interest rate into 72and the result is the answer, in years.At 6%, your stake will doublein 12 years; at 10%, it will take7.2 years. This little mathematicalexercise is important for long-terminvestors, because it highlights theneed for higher-growth, higher-riskinvestments to beat inflation. Tenyears from now, at 3% inflation,you'll need $13,439 to buy goodsworth $10,000 in today's dollars.Invest $10,000 at 6% and you'll have$17,908 in 10 years, a gain of just$4469 after inflation is factored out.On the other hand, if you invest at11%, the historic return of the S&P500 over 75 years, you'll have$28,394 in the kitty, an inflation-adjustedgain of $14,955.