Sometimes simple concepts are the best when trying to explain more difficult subjects. The Rule of 72 is one of those simple concepts, risk/volatility and expected return is the more difficult subject.
When investing your money, you must decide how much volatility you can deal with and how much risk you are willing to take with your funds. Your ability and willingness to deal with both will have an impact on the overall return you can expect.
It is very important that people understand how their decision now will play out 20 or even 30 years from now. If you are simply unwilling to deal with any volatility/risk and you accept a 1% return you may not notice what you are missing out on, and that would likely be higher returns over time. The Rule of 72 adds some perspective to this decision, hopefully helping you make better informed decisions today that will benefit you in the future.
By taking on risk and investing you may earn 8%, and if so, you can expect your account to double in 9 years. However, by not taking on any risk and by accepting the 1% in a savings account, your money will not double for 72 years. You likely won’t even be around to see the double.
Can you afford to wait 72 years for your money to double?
If you haven’t put together an investment plan you should contact your CERTIFIED FINANCIAL PLANNER™ to get started immediately.