Just hearing or reading the phrase “double your money” gets me thinking of a few different things. The first is that anyone suggesting that they can double your money just may be trying to scam you. This is simply a reactionary approach I have. The second is that I do start to think, how can I double my nest egg? Money is a great thing, and it helps to have more!
A quick way to figure out how long it will take to double your money is the Rule of 72. This rule is a quick and easy way to simply calculate – with a rough, close enough estimate – how long it will take us to double our money with a given rate of return that’s reinvested.
Here’s an example: let’s say you manage to earn 9% per year with a given amount that you invest. Take 72, divide it by 9, and you get 8. Basic math, but in this context it can indicate that would take 8 years to double your money.
Let’s say you simply earn 2% per year. This is more in line with many so-called “safer” investments in this current environment. Applying the rule of 72, it would take 36 years to double your money. Actually it would be between 35 and 36 – I did say this was an estimate, right? 🙂
Anyway, this illustrates how much rate of return really matters. What we invest our money in, and how we handle risks and asset allocation, can influence our long-term rate of return. Ultimately, this can impact how much money we have for our retirement, old age, and other important needs.
Doubling our money is fun, but wouldn’t tripling our money be even better? For this, we can apply the Rule of 114. Take 114, divide it by a rate of return figure, and the answer will be an estimate of how long it will take to triple your money.
My Questions for You
Have you ever heard of the Rule of 72, or the Rule of 114?
Do you ever project what your investments will look like in the future, based on different rates of return?
Do you focus on rate of return of investments?