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Chapter 5

THE RULE OF 72 AND THE TIME VALUE OF MONEY

I agree. The million dollar question is: how long will it take to get my money back to where it was?

Any answer requires us to consider a rate of return. What annual percentage growth must I get wherever I decide to park my money?

It is essential that we understand the relationship between rate of return and time. Have you ever heard of The Rule of 72?

No…

Here’s how it works. Whatever interest rate you’re saving at, say 4%, divide that into the number 72. The result will tell you how many years it will take for your money to double. 4 into 72 is 18; so, every 18 years your money will double. See Figure 2.




Figure 2



Let’s say you have $100 in an account that earns 4%. If it continues to grow

 

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