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Unlocking the Power of Compound Interest: Understanding the Rule of 72
The Rule of 72 is a simple rule that you can use to estimate how long it will take for your money to double. For example, if you have $5,000 today, how long will it take to reach $10,000? You can use the Rule of 72 to find out. Simply divide 72 by the annual rate of return you expect to earn. The result is the approximate number of years it will take for your money to double For example, if your estimated annual rate of return is 6%, divide 72 by 6. You can expect your money to double in about 12 years. If you want to learn more about financial planning, read our blog about the proper steps and pair that knowledge with the rule of 72. If your estimated annual return is 8%, divide 72 by 8. In this case, you can expect your money to double in about 9 years. You can use the Rule of 72 to find out the return rate needed to double your money. This applies to a specific number of years. For example, if you want to double your money in 6 years, divide 72 by 6. You need to earn an average return of 12% each year. The Rule of 72 can also help with inflation. It lets you estimate how long it will take for an item's cost to double. For example, if the average annual inflation rate is 3%, divide 72 by 3. This means your item will cost twice as much in about 24 years. If the inflation rate averages 2%, it will take 36 years for the cost of your item to double. So go ahead and try out the versatile Rule of 72 or reach out to Frontier Bank today! These are hypothetical examples and are not intended to reflect the performance of a specific investment, nor are they an estimate or guarantee of any future value. Investment fees and expenses have not been deducted. If they had been, the results would have been lower. It is also important to note that these examples and illustrations assume a fixed annual rate of return: the rate of return on your actual investment portfolio will be different and will vary over time, according to actual market performance. Article Sourced by Broadridge Financial Solutions David Cover, AIF® |