Rule of 72

Saved $ earns interest. Compounding is when interest is added to the initial amount invested or saved and the total goes on to earn interest and be added to.

The Rule of 72 is a simple calculation used to estimate when your saved $ will double with the added and compounded interest. Simply divide 72 by the interest rate. The larger the interest rate, the less years.

An example is $2,000 invested in a stock mutual fund. Of course, there is no set rate of return but the stock market has made close to 10%. Let's assume this fund will return 8%. 72 divided by 8 equals 9. In nine years, the amount in the mutual fund will be $4,000.

Easy calculation with a large assumption, the rate of return. Of course, if you $ was placed in a 10 year CD or bond with a set rate of return, the calculation would be more concrete.

That's the Rule of 72.

'til later