Exactly right! See my post below.
Please explain Rule of 72 to all FReepers. Important information to have!
If you divide 72 by your interest rate, that is the number of years it will take to double your money.
So if you earn 7 percent on your investment then your investment will double in a little over 10 years.
A 10 percent return will double your investment in 7.2 years.
This assumes that you reinvest your returns.
The rule of 72 is absurdly simple. And destroys the myth that if your investment earned 10% interest you would collect twice as much money as if your investment earned 5%. It takes into account the time value of money. It is what makes insurance companies richer than banks.
It works like this: Divide your interest rate into the number 72. The result is how many years it takes to double your money.
So, lets say you start with $100,000 at age 30. At 12% interest, 72/12=6 years. So the following would be true:
Age Value
30 100,000
36 200,000
42 400,000
48 800,000
54 1,600,000
60 3,200,000
66 6,400,000
Now, lets make it 6, which would double your money every 12 years:
Age Value
30 100,000
42 200,000
54 400,000
66 800,000
Double the interest rate give this person eight times as much money at retirement! It is real. I wish high schools would teach this simple fact to American kids. We would not need social security at all.