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What is the Rule of 72?

What is the Rule of 72 and why is it so important to your retirement planning?

It seems the years keep turning over faster and faster – so fast it’s hard to keep up. Unfortunately one of the things that often gets put off is re-examining our investments.  But the speed at which the years go by make it that much more important that we pay attention to our investments.  A good example of this is called the Rule of 72.

The Rule of 72 shows us how fast our money will grow.  By dividing the interest rate you receive into 72, the result is the number of years to double your money.  For example, if you are receiving 2% interest, it will take 36 years to grow $10,000 into $20,000. (72 divided by 2% = 36 years.)  At 4% it will take 18 years and at 8% it will take 9 years.

The impact of this can be seen in the chart below.  It shows four investors, all age 30 and all starting with $10,000.  Investor A is very conservative and invests his money to earn 2%.  Investor B isn’t quite as conservative and invests her money to earn 4%.  Investor C considers himself to be a moderate investor, so he earns 6%, and Investor D invests for long-term growth, and is able to achieve an average return of 8%.

As you can see, Investor A is only able to get one “doubling” of his money in 36 years, leaving him with $20,000 at retirement.  Investor B is able to get two “doubles,” while investor C gets three “doubles” and Investor D gets four “doubles.”  But because the “doubles’ compound, Investor D, with his four “doubles,” actually ends up with eight times more money than Investor A.

 Rule of 72 chart
 

Don’t let another year go by with your money sitting idle.  The decisions you make today can have an enormous impact on your future wealth.  Even retirement itself can last 30 years, so it’s never too late to review your options to make sure your money is working as hard as it can.

The CFS* Financial Advisors of United Investment Planning are here to help you explore your investment options and make decisions based on your goals, risk tolerance and timeframes.  If you’d like a second opinion on the makeup of your portfolio, please give us a call.  For more information or to schedule your no-obligation consultation, call 888-200-7829 or email investments@unitedfcu.com.

Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor.  Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk, including the possible loss of principal.  Investment Representatives are registered through CFS.  United Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.


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