The Rule of 72

Double your money with this universal truth: the rule of 72.

Would you like to double your money? Type this into Google and you will get no shortage of suggestions on how to do that. Some will urge you to gamble, others to borrow as much capital as you can, chase crypto, commodities, specky shares. The list goes on and on with many ways that are so risky you are likely to lose your money. So risky in fact that you wouldn’t bet your house on it.

If you really want to double your hard-earned money, it is best to stick with proven methods. The Rule of 72 is quite simple, work out your expected rate of return on your investments and divide it by 72. As an example, if your annualised investment returns work out to be:

10% it will take 7.2 years for your money to double (72 / 10 = 7.2);
8% will take 9 years (72 / 8 = 9); and
6% will take 12 years (72 / 6 = 12).

Let’s put this concept into reality over the past decade: Case Study: Lisa & John (aged 50).

Lisa and John are educated investors and clients of Alman Partners, it’s January 2010 and the markets are still feeling the effects of the GFC. They know enough not to risk their hard-earned capital by chasing highly speculative returns. They decide to invest in our AP100* well-diversified, high growth investment portfolio. Because they have complete confidence that the investments will not crash and burn, they allocate $1m for long-term investment purposes and receive, as it turns out, an 8% annualised return up until the end of December 2020. Using the rule of 72 they have well and truly doubled their money.

The moral of this investment story is pretty clear. Successful wealth creation is not about gaining the highest returns, it is about allocating as much money as you can in a safe and secure manner, and giving your investments time to reward you.

*Investment returns based on AP100/0 portfolio before advice fees. All income reinvested.

 

Stephen Lowry (CFP® Professional, DFP, AIF®) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.

Note: This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.

 

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