Rule of 72

30 04 2010

What is Rule of 72 ?

A rule stating that in order to find the number of years required to double your money at a given interest rate, you divide the compound return into 72. The result is the approximate number of years that it will take for your investment to double.

Example :

If you have RM 10000 at the age of 25 and deposited it into a FD account with 4% interest rate.

72 divided by 4 = 18

18 years later when you are 43 years old you will have RM 20000 and another 18 years when you are 61 years old you will have RM 40000.

If you are able to find an investment that can generate 8% per year

72 divided by 8 = 9

9 years later when you are 34 years old, you will have RM 20000, another 9 years when you are 43 years old, you will have RM 40000. When you reach 52 years old you will have RM 80000. At the age of 61, you will have RM 160000.

There is huge difference with a 4% and 8% investment tool.

With 4% you will have RM 40000 in the age of 61
With 8% you will have RM 160000 in the age of 61

This indicates the importance of knowing the Rule of 72 and the importance of start invest in your early year and you must try your best to invest in the investment products that can generate higher interest rate. Hope the Rule of 72 will enhance your financial knowledge.

Source:http://fortunesense.blogspot.com/2008/10/rule-of-72.html


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