Posted by Hi everyone. Rebecca here with a neat little trick you can use to impress your friends.
Have you ever wondered how long it will take for your portfolio to double in value? For example, if you invested $10,000 today and simply left it invested at a certain rate of return, how long would it take to go to $20,000?
There is a fairly well-known trick called “The Rule of 72” that will tell you approximately how long it will take.
Now, other than being a bad party trick, this isn’t really going to help you in many real-life scenarios. So, at the end of this video, I’m going to give you a link to another free video where one of our study coaches walks through calculations like this and more, easily on a financial math calculator. Knowing how to calculate the future or present value of payments can be useful in your day to day life. Wouldn’t you like to be armed with a little more information when deciding whether to buy or lease a car? Or maybe when considering one of those “buy now, pay later” type deals? Or how much an extra 1/4% investment return can impact things? Knowledge is power.
All right. The Rule of 72 simply says this: If you divide the number 72 by the investment return, it will tell you approximately how long it will take to double your money. Let’s assume an investment return of 10%. I acknowledge that’s a high return, but I want to use a nice, round, easy number for learning purposes. If we take 72 and divide it by 10, we get 7.2. Therefore, if your investment return is 10%, it would take about 7.2 years to double your money. Pretty cool, right? If you’re skeptical, don’t worry. I’ve confirmed it using my financial math calculator.
What if your investment return was only 5%? 72 divided by 5 equals 14.4. So, it would take about 14.4 years to double your money. And, once again, I’ve confirmed it using my trusty financial math calculator.
Like I said, the rule of 72, isn’t going to help you in too many real world scenarios, but I have some good news! With a little work you can learn how to do these calculations and more, and we can help you. Here’s your homework: Check out SeeWhy’s complimentary YouTube video titled “How to Use a Financial Math Calculator”. We’ve put a link below. Thanks everyone for dropping by the Coach’s Hangout. And if you’re finding a video helpful, subscribe to our YouTube channel, smash that like button, and head over to SeeWhyLearning.com to check out our full suite of study tools.